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UNITED STATES OF AMERICA

BEFORE THE FEDERA TRAE COMMISSION ORIGINAL

COMMISSIONERS: Edith Ramirez, Chairwoman

Julie Bril

Maureen K. Ohlhausen

Joshua D. Wright

In the Matter of

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McWANE, INC.,

Respondent.

DOCKET NO. 9351

COMPLAINT COUNSEL'S ANSWERING BRIEF

TO RESPONDENT'S APPEAL BRIEF

Deborah L. Feinstein

Director

Edward D. Hassi, Esq.

Linda M. Holleran, Esq.

J. Alexander Ansaldo, Esq.

Joseph R. Baker, Esq.

Thomas H. Brock, Esq.

Monica M. Castilo, Esq.

Mika Ikeda, Esq.

Andrew K. Mann, Esq.

Pete Levitas

Deputy Director

Geoffrey M. Green

Acting Assistant Director

Christopher Renner

Acting Deputy Assistant Director

Federal Trade Commission

Bureau of Competition

600 P-ennsylvania Ave., N.W.

Washington, DC 20580

Telephone: (202) 326-2470

Facsimile: (202) 326-3496

Electronic Mail: ehassi@ftc.goV

Michael J. Bloom

Assistant Director for Policy & Coordination

Jeanine Balbach

Attorney, Office of Policy & Coordination

Dated: July 8, 2013
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,~' TABLE OF CONTENTS

III.

A.

1.

a)

b)

I. Introduction......................................................................................................................... 1

II. Statement of Facts ....................................................:..........................................................2

A. Industry Background........................................................................................................... 2

B. Challenged Conduct............................................................................................................3

1. McWane Implemented an Exclusive Dealing Policy to "Block Star".......................... 3

2. The MDA Co-opted Independent Entr by Sigma ....................................................... 5

Legal Analysis..... ....... ............................. ........... ........... .............. ............... ................. ....... 6

McWane Has Monopoly Power in the Domestic Fittings MarkeL.................................... 6

Domestic Fittings is a Relevant Price Discrimination Market..................................... 6

Imported and Domestic Fittings Are Not Substitutes ............................................... 7

Distributors' Limited Opportunity to Flip Specifications Does Not Establish a

Larger Market ............ ............... ...... ........... ......... .......... ................... ............. ........ .... 9

McWane Possesses Monopoly Power, or a Dangerous Probabilty of Achieving

Monopoly Power, in the Domestic Fittings Market................................................... 10

B. McWane Monopolized and/or Attempted to Monopolize the Market for Domestic

Fittings (Counts Six and Seven) ....................................................................................... 13

1. McWane Implemented an Exclusive Dealing Policy................................................. 14

2. McWane Acted with a Specific Intent to Monopolize................................................ 15

3. McWane's Exclusive Dealing Policy Injured Competition........................................ 16

a) McWane's Exclusive Dealing Policy Foreclosed a Substantial Share of the

Domestic Fittings Market....................................................................................... 16

McWane's Exclusive Dealing Policy Prevented Star from Competing Effectively

and Injured Competition......................................................................................... 20

c) McWane's Effciency Justification Fails................................................................ 23

d) Exclusion of Less Effcient Competitors is Not a Defense..................................... 25

C. The MDA Unreasonably Restrained Competition in the Domestic Fittings Market (Count

Four)..................................................................................................................................27

1. Sigma Was a Potential Competitor .............................................................................30

2. The MDA is Per Se Unlawfl and/or Inherently Suspect.......................................... 37

3. McWane Injured Competition by Eliminating a Nascent Entrant or POtential

Competitor .......................... ........ ............ ..... .......... ......... .................. ..... ......... ....... ..... 38

There is no Legitimate Efficiency Justification for the MDA .................................... 40

Diverting Sales to McWane's Foundry Is Not a Cognizable Efficiency................ 41

Providing Distributors a Choice of Suppliers Is Not a Defense ............................. 42

2.

b)

4.

a)

b)
E.

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5.

D.

Asserted Termination of the MDA Is Not a Defense .....................ò........................... 42

McWane Conspired with Sigma to Monopoli~e the Domestic Fittings Market (Count

Five) ..................................................................................................................................43

The Proposed Injunctive Remedy is Not Moot................................................................ 45

Conclusion ........................................................................................................................47

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TABLE OF AUTHORITIES

Cases

Alled Orthopedic Appliances Inc. v. Tyco Health Care Group LP, 592 F.3d 991

(9th Cir. 2010)...........................................................................................................................26

Am. Tobacco Co. v. United States, 328 U.S. 781 (1946)..............................................................44

Barry Wright Corp. v. ITT Grinnell Corp., 724 F.2d 227 (1st Cir. 1983).................................... 26

Bd. of Trade of the City of Chicago v. United States, 246 U.S. 231 (1918) .................................16

Cascade Health Solutions v. Peacehealth, 515 F.3d 883 (9th Cir. 2008) .................................... 26

Coastal Fuels, Inc. v. Caribbean Petroleum Corp., 79 F.3d 182 (1st Cir. 1996)........................... 7

Concord Boat Corp v. Brunswick Corp., 207 F.3d 1039 (8th Cir. 2000)..................................... 26

Conwood Co. v. Us. Tobacco Co., 290 F.3d 768, 791 (6th Cir. 2002) ....................................... 19

Defiance Hosp. v. Fauster-Cameron, Inc., 344 F. Supp. 2d 1097 (N.D. Ohio 2004) .................. 11

Eastman Kodak Co. v. Image Tech. Servs., 504 U.S. 451 (1992) ......................................... passim

eBay Inc. v. MercExchange, LLC, 547 U.S. 388 (2006)...............................................................47

Eli Lily & Co. v. Zenith Goldline Pharms., Inc., 172 F. Supp. 2d 1060

(S.D. Ind. 2001) .................................................................................................................. 38, 40

Engine Specialtes, Inc. v. Bombardier, Ltd., 605 F.2d 1 (1st Cir. 1979)..................................... 30

Fraser v. Major League Soccer, L.L.c., 284 F.3d 47 (1st Cir. 2002) ..........................................44

Freeman v. San Diego Ass'n of Realtors, 322 F.3d 1133 (9th Cir. 2003) ....................................25

Friends of the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U. S. 167

(2000)........................................................................................................................................46

FTC v. Whole Foods Mk., Inc., 548F.3d 1028 (D.C. Cir. 2008) ........................................... 7,10

FTC v. Actavis, Inc., 570 U.S. _ (June 17,2013) ........................................................... 30, 31, 38

FTC v. Allant Techsystems, 808 F. Supp. 9 (D.D.C. 1992) ........................................................... 9

FTC v. Arch Coal, Inc., 329 F. Supp. 2d 109 (D.D.C. 2004) .........................................................6

FTC v. CCC Holdings Inc., 605 F. Supp. 2d 26 (D.D.C. 2009) .....................................................8

FTC v. Swedish Match, 131 F. Supp. 2d 151 (D.D.C. 2000).......................................................... 7

Geneva Pharms. Tech. Corp. v. Barr Labs., Inc. 386 F.3d 485 (2d Cir. 2004).............................. 8

Gulf States Reorganization Group, Inc. v. Nicor Corp., 466 F.3d 961 (11th Cir. 2006) ............. 19

Hosp. Corp. of Am. v. FTC, 807 F.2d 1381 (7th Cir. 1986) .........................................................15

Howard Hess Dental Labs., Inc. v. Dentsply Intl, Inc., 602 F.3d 237 (3d Cir. 2010).................45

Image Tech. Servs. v. Eastman Kodak Co., 125 F.3d 1195 (9th Cir. 1997) ................................. 41

In re B.A. T. Indus., 1984 FTC LEXIS 4 (Dec. 17, 1984) ............................................................. 35

In re McWane, Inc., 2012 FTC FTC LEXIS 155 (Sept. 14,2012).........................................16,30

In re Polygram Holding, 136 F.T.C. 310 (2003)..............................................................41,42,43

In re Polypore Intl, Inc., 2010 FTC LEXIS 97 (Dec. 13,2010) .................................................12

In re Realcomp 11,2007 WL 6936319 (Oct. 13,2009)........................................................... 37, 40

In re Schering-Plough Corp., 136 F.T.C. 956 (2003)................................................................... 31

In re SKF Indus., 94 F.T.C. 6 (1979)............................................................................................ 38

In re The Coca-Cola Co., 117 F.T.C. 795 (1994)......................................................................... 46

Insignia Sys., Inc. v. New Am. Mkg. In-Store, Inc., 661 F. Supp. 2d 1039

(D. Minn. 2009) ........................................................................................................................20

Intl Distrib. Ctrs., Inc. v. Walsh Trucking Co., 812 F.2d 786 (2d Cir. 1986) ............................. 44

LePage's, Inc. v. 3M, 324 F .3d 141 (3d Cir. 2003) ...................................................................... 22

Levine v. Cent. Fla. Med. Affliates, 72 F.3d 1538 (11 th Cir. 1996) ...................................... 43, 44

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Lorain Journal Co. v. United States, 342 U.S. 143 (1951)........................................................... 15

Los Angeles v. Lyons, 461 U.S. 95 (1983) .................................................................................... 47

Nat'l SocyofProf'1 Eng'rs v. United States, 435 U.S. 679 (1978)............................................. 25

North Carolina State Bd. of Dental Examiners v. FTC, 2013 U.S. App. LEXIS 11006

(4th Cir. May 31, 2013) ............................................................................................................ 41

Northeastern TeL. Co. v. AT&T Co., 651 F.2d 76 (2d Cir. 1981) ................................................. 43

Nynex Corp. v. Discon, Inc., 525 U.S. 128 (1998) ....................................................................... 37

Oahu Gas Service, Inc. v. Pacifc Resources, Inc., 838 F.2d 360 (9th Cir. 1988)........................ 12

Omega Envtl., Inc. v. GUbarco Inc., 127 F.3d 1157 (9th Cir. 1997) ............................................ 17

Palmer v. BRG of Georgia, Inc., 498 U.S. 46 (1990).............................................................37,38

Park W Radiology v. Care Core Nat'l LLC, 675 F. Supp. 2d 314 (S.D.N.Y. 2009)...................... 7

Perington Wholesale, Inc. v. Burger King Corp., 631 F.2d 1369 (10th Cir. 1979)...................... 43

Reazin v. Blue Cross & Blue Shield of Kansas, Inc., 899 F.2d 951 (10th Cir. 1990)................... 12

Rebel Oil Co. v. Atlantic Richfeld Co., 51 F.3d 1421 (9th Cir. 1995)......................................... 12

Robert's Waikiki U-Drive, Inc. v. Budget Rent-A-Car Systems, 491 F. Supp. 1199

(D. Haw. 1980) .........................................................................................................................44

Rubbermaid, Inc. v. FTC, 575 F.2d 1169 (6th Cir. 1978) ............................................................ 46

Ryko Mfg. Co. v. Eden Servs., 823 F.2d 1215 (8th Cir. 1987)......................................................23

Schering-Plough Corp. v. FTC, 402 F .3d 1056 (11 th Cir. 2005) ................................................. 31

Spectrum Sports v. McQuilan, 506 U.S. 447 (1993) ............................................................. 13, 15

Summers v. Earth Island Inst., 555 U.S. 488 (2009) .................................................................... 47

Sunbeam TV Corp. v. Nielsen Media Research, Inc., 763 F. Supp. 1341 (S.D. Fla. 2011).......... 40

Thompson v. Metro. Multi-List, Inc., 934 F.2d 1566 (11th Cir. 1991) ......................................... 43

Times-Picayune Publ'g Co. v. United States, 345 U.S. 594 (1953) ............................................. 15

Todd v. Exxon Corp., 275 F.3d 191 (2d Cir. 2001) ...................................................................... 11

Union Leader Corp. v. Newspapers of New England, Inc., 284 F.2d 582 (1st Cir. 1960) ...........25

United States v. Aluminum Co. of Am., 148 F.2d 416 (2d Cir. 1945)........................................... 15

United States v. Archer-Daniels-Midland Co., 866 F.2d 242 (8th Cir. 1988)................................ 8

United States v. Delta Dental, 943 F. Supp. 172 (D.R.I. 1996)....................................................29

United States v. Dentsply Int '1, Inc., 399 F .3d 181 (3d Cir. 2005) ........................................ passim

United States v. E.l du Pont de Nemours & Co., 351 U.S. 377 (1956) ......................................... 6

United States v. Gen. Elec. Co., 1997 WL 269491 (Mar. 18, 1997) ............................................ 38

United States v. Grinnell Corp., 384 U.S. 563 (1966).............................................................. 7, 13

United States v. Marine Bancorporation, 418 U.S. 602 (1974) ................................................... 32

United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001) ........................................... passim

United States v. Syufy Enterprises, 903 F.2d 659 (9th Cir. 1990) .................................................. 9

United States v. Uniroyal, Inc., 300 F. Supp. 84 (S.D.N.Y. 1969)...............................................46

WMR. Watch Case Corp. v. FTC, 343 F.2d 302 (D.C. Cir. 1965) ............................................. 46

Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011) .............................................................. 47

Wiliams v. 5300 Columbia Pike Corp., 891 F. Supp. 1169 (E.D. Va. 1995) .............................. 43

Winter v. NRDC, 555 U.S. 7 (2008) ............................................................................................. 47

Yamaha Motor Co. v. FTC, 657 F.2d 971 (8th Cir. 1981) .....................................................30,31

ZF Meritor, LLC v. Eaton Corp., 696 F.3d 254 (3d Cir. 2012)........................................16,20,26

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Statutes

15 U.S.C. § 45(b) ..................................................................................:....................................... 52

15 U.S.C. § 12 et seq........................................................................................................... 7, 36, 42

15 U.S.C. §§ 1, 2.................................................................................................................... passim

Other Authorities

U.S. Dept. of Justice & Fed. Trade Cmm'n, Horizontal Merger Guidelines (2010)......... 7, 8, 9, 12

Fed. Trade Cmm'n & U.S. Dept. of Justice, Antitrust Guidelines for Collaborations

Among Competitors § 1. i (2000) .............................................................................................. 30

Treatises

2B Philip E. Areeda, Herbert Hovenkamp et al., Antitrust Law ii 534d (3d ed. 2010) ......... passim

Andrew i. Gavil, Exclusionary Distribution Strategies by Dominant Firms:

Striking a Better Balance, 72 ANTITRUST L.J. 3 (2004) ........................................................... 27

Jonathan M. Jacobson, Exclusive Dealing, "Foreclosure," and Consumer Harm,

70 ANTITRUST L.J. 311 (2002) .................................................................................................. 21

Joshua D. Wright, Moving Beyond Naïve Foreclosure, 19 GEO. MASON L. REv. 1163

(2012)...........................................................................................................................17, 19,21

Richard A. Posner, ANTITRUST LAW (2d ed. 2001) ................................................................ 24, 37

Richard M. Steuer, Exclusive Dealing in Distribution, 69 CORNLL L. REv. 101 (1983) ........... 23

Steven C. Salop, Exclusionary Conduct, Effect on Consumers, and the Flawed

Profit-Sacrifce Standard, 73 ANTITRUST L.J. 311 (2006) ....................................................... 27

Thomas G. Krattenmaker & Steven C. Salop, Anticompetitve Exclusion: Raising

Rivals' Costs to Achieve Power over Price, 96 YALE L.J. 209 (1986) .....................................21

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I. INTRODUCTION

In 2009, McWane was confronted with the threat of competition in the Domestic Fittings

market from potential market entrants Star and Sigma. Mc Wane responded with a two-pronged

strategy to maintain its Domestic Fittings monopoly. First, McWane implemented an "all-ornothing" Exclusive Dealing Policy; it threatened to terminate any Distributor that dared to

purchase Domestic Fittings from Star. Second, McWane negotiated a "Master Distribution

Agreement" or "MDA" with Sigma; McWane induced Sigma to abandon its independent entry

plans and instead to distribute McWane's Domestic Fittings at non-competitive prices

determined by McWane. McWane's strategy was successfuL. McWane maintained more than

f L of the Domestic Fittings market, and continued to sell Domestic Fittings at

supracompetitive prices.

Importantly, McWane adopted both strategies with the specific intent to monopolize the

Domestic Fittings market. McWane adopted its Exclusive Dealing Policy in order to handicap

Star and to prevent competition ("(a )voids the job by job auction scenario"); Mc Wane feared that

Domestic Fittings prices would "get() creamed" if Star, a historically aggressive competitor,

entered the market successfully. IDF1149, 1162. Likewise, McWane executed the MDA with

Sigma because it determined that a loss of margin on sales to Sigma was better for McWane than

competing with an independentSigma. IDF1527 (describing "choice of evils"). There is no

legitimate efficiency justification for this conduct.

Because McWane's Exclusive Dealing Policy and MDA with Sigma constitute unlawful

monopolization, attempted monopolization, restraint of trade in, and conspiracy to monopolize

the Domestic Fittings market, the Commission should adopt Judge Chappells relevant liability

findings and enter judgment against Mc Wane on Counts IV-VII.

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II. STATEMENT OF FACTS

A. Industry Background

Ductile iron pipe fittings (24" or less in diameter) manufactured in the United States

("Domestic Fittings") are functionally interchangeable with imported Fittings. IDF322-324,

517.1 Like the imported Fittings market, the Domestic Fittings market has high barriers to entry.

IDFI044-1050. Suppliers of imported and Domestic Fittings also use the same wholesale

waterworks distributors ("Distributors") to sell their products to municipalities, regional water

authorities, and the contractors they hire to construct waterworks projects ("End Users").

IDFlO-11, 373-374, 381-382; CCPF475-479. Distributors are "critical" to the suppliers'

success. IDF400-412. Two large, nationwide Distributors (HD Supply and Ferguson) account

for more than 50% ofFitlings sales in the United States; the remaining Distributors consist of

hundreds of small, local companies and a few regional Distributors. IDF222-223, 227-228, 375-

377.

There are three key distinctions between the Domestic Fittings market and the overall

Fittings market. First, from 2006 through late 2009, McWane was the sole full-line supplier of

Domestic Fittings. IDFI040. In late 2009, Star entered the Domestic Fittings market by

contracting with independent, domestic foundries to produce castings for Domestic Fittings, with

Star "finishing" them at its Houston plant. IDF1094-1144. Even after Star entered, McWane

maintained a f L or higher market share, and had monopoly power in the Domestic Fittings

market. IDF1042-1043, in camera.

i Unless otherwise noted, "Domestic Fittings" refers to domestically-manufactured Fittings sold

into Domestic-only Specifications (as defined infra).

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Second, due to legal requirements or political preference, some End Users explicitly

specify that the Fittings used in their waterworks projects must be manufactured in the United

States ("Domestic-only Specifications"). IDF346-347; 519-523. In contrast, "Open

Specifications" allow Distributors to supply either imported or Domestic Fittings. IDF349-350.

In February 2009, the size of the Domestic Fittings market grew with the enactment of

the American Recovery and Reinvestment Act of2009 ("AR"). IDFI033-1034; CCPFI647-

1654. ARR allocated over $6 bilion to water infrastructure projects built with domesticallyproduced materials, including Domestic Fittings (the "Buy American" requirement). IDF7,524,

526-527. Although there were several waivers to the Buy American requirement, the application

of those waivers to Fittings was commercially insignificant. IDF527, 531-533, 537; ID249.

Third, as compared to its imported Fittings transactions, Mc Wane charges "substantially

higher" prices, earns substantially higher gross profits, and offers far fewer special discounts off

published prices (called "Project Pricing") on sales of Domestic Fittings - because it does not

face competitive pressure. IDF547, 550, 1072-1076, 1091.

B. Challenged Conduct

The enactment of ARR motivated Star and Sigma to enter the Domestic Fittings

market. Mc Wane responded to this competitive threat by developing and pursuing a twopronged strategy to protect its Domestic Fittings monopoly. First, it "block(ed)" Star's entr by

implementing an all-or-nothing exclusive dealing policy. Second, it co-opted Sigma's

independent entr by entering into a Master Distribution Agreement ("MDA"). IDFI145-1597.

1. McWane Implemented an Exclusive Dealing Policy to "Block Star"

Star entered the Domestic Fittings market in 2009 with the abilty to sell the most

commonly used Domestic Fittings, and a plan to expand its offerings over time to include

infrequently used, "oddball" Domestic Fittings. IDF1120, 1130-31. Presented with a new

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entrant with an incomplete product line and an untested supply chain, many Distributors were

wiling to give Star some of their Domestic Fittings business, but few were wiling to give Star

all of that business. ID390-397; CCPFI894-1902. McWane forecast that Star's unimpeded

entr, even with an incomplete product line, would substantially discipline McWane's pricing of

Domestic Fittings. IDF1148-1154. McWane's "chief concern" was that Star, with its history of

aggressive discounting, would cause "the domestic market (to) get() creamed from a pricing

standpoint just like the non-domestic market has been driven down in the past." IDF1149.

The head ofMcWane's Fittings business, Mr. Richard Tatman, therefore proposed that

McWane implement a new exclusive dealing policy with Distributors that would "block Star"

from the Domestic Fittings market and avoid competition ("(a )voids the job-by-job auction

scenario"). IDF1148, 1155, 1162, 1519, 1580. McWane formally announced its new policy (the

"Exclusive Dealing Policy" or "Policy") in a September 22,2009, letter to Distributors, stating:

(E)ffective October 1,2009, McWane will adopt a program

whereby our domestic fittings and accessories wil be available to

customers who elect to fully support Mc Wane branded products

for their domestic fitting and accessory requirements....

Customers who elect not to support this program may forgo

participation in any unpaid rebates for domestic fitting and

accessories or shipment of their domestic fittings and accessory

orders of Tyler Union or Clow Water products for up to 12 weeks.

IDF1173.

Despite the soft "may/or" language of the September 22,2009 letter, McWane notified

Distributors that "(0 )nce they use Star, they can't EVER buy domestic from us." IDF 1179,

1183-1185, 1187-1192. McWane's documents show that the market understood McWane's

Policy to mean that McWane "wil" - not "may" - cut off Distributors' access to McWane's

Domestic Fittings if they buy any Domestic Fittings from Star, and that for Distributors with

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multple branches, "if one branch uses Star, every branch is cut off." IDFI179-1183. McWane's

Exclusive Dealing Policy effectively deterred Distributors from dealing with Star. ID407;

IDFI183-1185, 1187-1192. By impeding Star's Domestic Fittings sales, the Exclusive Dealing

Policy prevented Star from gaining a suffcient scale to compete effectively and constrain

McWane's monopoly prices. ID408; IDF1381-140I.

2. The MDA Co-opted Independent Entry by Sigma

Sigma also sought to enter the Domestic Fittings market, and considered sourcing

Domestic Fittings to be its "#la priority." CCPF2176. It pursued two potential avenues: (1)

obtaining Domestic Fittings from McWane; and (2) entering domestic production independently

using the same "virtual manufacturing" model that it used overseas. IDFI423-1424. By early

June 2009, it was prepared to "f

l" IDF1455, in camera.

Sigma formed an "SDP" team to develop and carr out its independent domestic entry

plan. The team visited foundries, secured offers to produce Domestic Fittings, and conducted a

series of production trials. IDFI446-1447, 1449-1463; CCPF2211-2248. Sigma had the

expertise and resources needed to develop and manufacture a competitive range of Domestic

Fittings, and absent an agreement with McWane, Sigma likely would have entered the Domestic

market. CCPF2266-2267.

McWane executives believed that Sigma had the capabilty and financing to enter the

Domestic Fittings market, and that it was in McWane's best interest to share its monopoly

margins with Sigma by sellng its Domestic Fittings to Sigma for re-sale - as an "insurance

policy" against independent competition from Sigma. IDF1441, 1518, 1530. In September

2009, McWane and Sigma signed the MDA, and agreed that:

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McWane would sell Domestic Fittings to Sigma at a 20% discount

from McWane's published prices, and Sigma would re-sell those

Domestic Fittings at a weighted average of at least 98% of

McWane's published prices (IDFI529, 1548-1557);

McWane would be "Sigma's sole and exclusive source for

Domestic Fittings," thereby ending Sigma's independent entry

efforts (IDFI540); and

Sigma would enforce McWane's Exclusive Dealing Policy by

refusing to sell Domestic Fittings to any Distributor that purchased

Domestic Fittings from Star (IDF1558-1570).

McWane and Sigma specifically intended that their agreement would make it even harder for

Star to enter the market. IDF1575-158I.

III. LEGAL ANALYSIS

A. McWane Has Monopoly Power in the Domestic Fittings Market

Judge Chappell correctly found that McWane has monopoly power in the Domestic

Fittings market. ID383.2 As Complaint Counsel's economic expert explained, the hypothetical

monopolist test demonstrates that Domestic Fittings is a relevant price discrimination market,

and direct and indirect evidence prove McWane's monopoly power.

1. Domestic Fittings is a Relevant Price Discrimination Market

A relevant product market consists of all products that are reasonably interchangeable

"for the purposes for which they are produced - price, use and qualities considered." United

States v. E.l du Pont de Nemours & Co., 351 U.S. 377, 404 (1956). Thus, the two main factors

for defining a relevant product market are (i) the similarity in character and use of the products

from the buyer's perspective, and (ii) the cross-elasticity of demand between the product and

potential substitutes. FTC v. Arch Coal, Inc., 329 F. Supp. 2d 109, 119-20 (D.D.C. 2004); FTC

2 McWane does not contest Judge Chappell's cluster market findings aggregating all fittings

sized 24" and smaller, or that the relevant geographic market is the United States. IDF498-516,

554.

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v. Swedish Match, 131 F. Supp. 2d 151, 157 (D.D.C. 2000); E.l du Pont, 351 U.S. at 400

(demand cross-elasticity analysis considers "responsiveness of the sales of one product to price

changes of the other"). The Horizontal Merger Guidelines analyze demand cross-elasticity by

determining whether a hypothetical monopolist could profitably impose a small but significant

and non-transitory price increase ("SSNIP"). U.S. Dep't of Justice & Fed. Trade Cmm'n,

Horizontal Merger Guidelines, at §4.I.l (2010). Ifa SSNIP of the hypothetically-monopolized

products is profitable, then the market is properly defined to include only those products. Id.;

see also FTC v. Whole Foods Mk., Inc., 548 F.3d 1028, 1038 (D.C. Cir. 2008) (describing

SSNIP test as a way to define relevant product market).3

a) Imported and Domestic Fittings Are Not Substitutes

There are no reasonable substitutes for Domestic Fittings. ID248-251. Although

Imported Fittings are functionally equivalent to Domestic Fittings (IDF517), they are not a

substitute for, and do not constrain prices of, Domestic Fittings. IDF350, 537, 547-550; ID248-

249. Distributors uniformly testified that imported Fittings are not interchangeable with or a

reasonable substitute for Domestic Fittings when Domestic-only Fittings are specified by the End

User. ID250; IDF549 ("Regardless of price, a Distributor wil not purchase an imported Fitting

ifthe End User's specification calls for a Domestic Fitting.").

When McWane sells Domestic Fittings into Domestic-only Specifications, it charges

25% more than its prices for the same Fittings (or imported Fittings) sold into an Open

3 Because market definition standards are the same under the Sherman and Clayton Acts, see,

e.g., United States v. Grinnell Corp., 384 U.S. 563, 572-573 (1966), reliance upon the Horizontal

Merger Guidelines and the hypothetical monopolist test to define a market in a non-merger case

is not, as McWane contends, "controversial;" it is well-accepted practice. See, e.g., Coastal

Fuels, Inc. v. Caribbean Petroleum Corp., 79 F.3d 182, 197 (18t Cir. 1996); Park W Radiology v.

Care Core Nat'l LLC, 675 F. Supp. 2d 314,327-28 (S.D.N.Y. 2009).

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Specification job, reflecting the low cross-elasticity of demand between Domestic and imported

Fittings. ID251-252; IDF1075-1077. Where, as here, suppliers can profitably charge different

prices (net of costs) to different customers depending on known customer preferences, the

relevant market is defined by the purchasing requirements of those customers vulnerable to the

price increase. 2010 Horizontal Merger Guidelines §4.1.4 (price discrimination market

appropriate when dominant supplier could "profitably target a subset of customers" even if

supplier lacked power over other customers); United States v. Archer-Daniels-Midland Co., 866

F.2d 242,248 (8th Cir. 1988) (significant price differential between functionally interchangeable

products evidenced low demand cross-elasticity and two different product markets); Geneva

Pharms. Tech. Corp. v. Barr Labs., Inc. 386 F.3d 485, 496-97 (2d Cir. 2004) (same); Areeda &

Hovenkamp, Antitrust Law iì534d (same) (hereinafter "Areeda,,).4

McWane's complaint that Judge Chappell defined the relevant market without relying on

a quantitative analysis (RA6) is irrelevant; markets may be defined without algorithmic

precision. Eg., 2010 Horizontal Merger Guidelines §4.1.3 (market may be defined using "any

reasonably available and reliable evidence," including information on how buyers would respond

to price change, sellers' business documents, legal requirements, etc.). Because a hypothetical

monopolist of Domestic Fittings can profitably raise prices above the competitive level - and

because that monopolist has actually raised prices (IDF547-550, 1074-1077) - Judge Chappell's

finding of a discrete Domestic Fittings market should be affrmed.

4 The finding of a distinct Domestic Fittings market is also supported by the following facts:

Imported and Domestic Fittings prices do not move in parallel (indicating different demand

curves) (IDF547-550; CCPF632-633), and McWane's internal documents recognize a separate

Domestic Fittings market (IDF 1148-1154). See Areeda iì562a ("Without correlation in their

price changes, two products are probably in separate markets."); FTC v. CCC Holdings Inc., 605

F. Supp. 2d 26, 41-43 (D.D.C. 2009) (taking into account "industr recognition" of separate

markets, including as reflected in internal business documents).

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b) Distributors' Limited Opportunity to Flip Specifications Does

Not Establish a Larger Market

McWane's primary argument against a Domestic Fittings market (RA5) is the claim

that customers can "flp" specifications from Domestic-only to Open (allowing imported Fittings

to be used), and that such competition constrains the price of Domestic Fittings. This argument

fails for two reasons.

First, as McWane's expert concedes, some Domestic-only Specifications are mandated

.! by law, and cannot reasonably be "flpped." ID250 ("the evidence overwhelming(ly) showed

these regulations did in fact limit substitution"); RX-712A (Normann Rep. at 28) ("It is unlikely

that state laws could be easily changed based on short-term fluctuations in relative prices.");

United States v. Syufy Ents., 903 F.2d 659, 673 (9th Cir. 1990) (considering governent

regulations in defining relevant market).5

To overcome this defect, McWane wrongly asserts that AR Domestic-only

Specifications were flpped "routinely" to permit imported Fittings, through waivers of the

ARR Buy American requirement. RA4. McWane's argument does not address any of the

Domestic-only Specifications required by laws other than AR. See IDF519-523. It also

ignores the overwhelming evidence showing that the use of AR-related waivers was

commercially insignificant. IDF530-546; ID249. In fact, McWane - which was well positioned

to observe the use of any waivers - admitted that it could not identify a single instance where an

5 McWane also seeks to minimize the number oflegally-required Domestic-only Specifications.

RA3. This argument fails as a matter of law: legally-required Domestic-only Specifications are

more than a de minimis market. See IDF519-529 (listing federal, state, and local laws requiring

Domestic-only Specifications). And a relevant product market cán be comprised of even a single

customer. FTCv. Allant Techsystems Inc., 808 F. Supp. 9,20 (D.D.C. 1992); 2010 Horizontal

Merger Guidelines §4.1.4 ("(T)he hypothetical monopolist test may suggest relevant markets that

are as narrow as individual customers.").

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imported Fitting was used in an AR-funded project. IDF538. Other Fittings suppliers and

Distributors confirmed that, as a practical matter, AR waivers were not used for Fittings.

IDF537-546.

Second, contrary to Mc Wane's assertion, the decline in Domestic Fittings sales over the

last 15-20 years does not show competition between Open and Domestic-only Specifications.

This assertion is factually incorrect.6 It is also legally insuffcient because the fact remains that

domestic producers "compete for core consumers within a (Domestic Fittings) market, even if

they also compete on individual products for marginal consumers in the broader (Fittings)

market." See Whole Foods, 548 F.3d at 1037. In Whole Foods, the D.C. Circuit held that:

a core group of particularly dedicated, "distinct customers," paying

"distinct prices," may constitute a recognizable submarket,

whether they are dedicated because they need a complete "cluster

of products," because their particular circumstances dictate that a

product "is the only realistic choice," or because they find a

particular product "uniquely attactive"

Id. at 1039 (internal citations omitted). Likewise here, End Users of Domestic-only

Specifications constitute a core group of "distinct customers" who pay "distinct (and

significantly higher) prices" for Domestic Fittings. This is strong evidence that imported and

Domestic Fittings are separate markets.

2. McWane Possesses Monopoly Power, or a Uangerous Probabilty of

Achieving Monopoly Power, in the Domestic Fittings Market

As Judge Chappell correctly found, McWane's monopoly power (or dangerous

probabilty of achieving monopoly power) in the Domestic Fittings market is established by

6 Whereas the number of Domestic Fittings sold may have declined, the share of Domestic-only

Specifcations has remained relatively constant. According to Mc Wane witnesses before the ITC

in 2003, Domestic-only Specifications constituted approximately 10%-20% of the overall

Fittings market- similar to McWane's 20% estimate today. IDFI026, 1029-1031.

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circumstantial evidence of McWane's high market shares and high entr barriers, and by direct

evidence ofMcWane's abilty to control prices and exclude competitors. ID371, 383; United

States v. Microsoft Corp., 253 F.3d 34,51 (D.C. Cir. 2001).

The record evidence proves that: (i) McWane's share of the Domestic Fittings market

was over f L percent (ID372-375; IDF1040-1144); (ii) barriers to entry were substantial

(ID375-377; IDFI044-1071); (i,i) McWane charged supra-competitive prices for Domestic

Fittings (ID378-381; IDFlO72-1093); and (iv) McWane effectively excluded Star from

becoming an efficient rival (ID381-383; IDF1381-1420). This evidence is more than suffcient

to establish that McWane possesses monopoly power, or a dangerous probabilty of achieving

monopoly power, in the Domestic Fittings market. See Microsoft, 253 F .3d at 51; see also

Eastman Kodak Co. v. Image Tech. Servs., 504 U.S. 451, 481 (1992) (80% share sufficient to

infer monopoly power); Defiance Hosp., Inc. v. Fauster-Cameron, Inc., 344 F. Supp. 2d 1097,

1117 (N.D. Ohio 2004) (market shares sufficient to support a monopolization claim can also

support attempted monopolization).; Todd v. Exxon Corp., 275 F.3d 191,206 (2d Cir. 2001)

(exclusionary conduct "is a strong indicator of market power").

McWane concedes that its market share is at the monopoly level, and does not appeal

Judge Chappell's findings that de novo entry is expensive, difficult, and time consuming, and

thus prevents "new rivals from timely responding to an increase in price above the competitive

leveL." Microsoft, 253 F.3d at 51; see IDF1044-1050; ID375-376. McWane contends, however,

that Star's small-scale entry into Domestic Fittings precludes a finding of entry barriers and

monopoly power. RAB25-27. This is incorrect. It is unquestionably easier for imported Fittings

suppliers like Star (or Sigma) to enter the Domestic Fittings market than it is for de novo

entrants. IDF1051-1055. However, Star's market entr in late 2009 would negate a finding of

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monopoly power only if the "magnitude, character and scope" of Star's entry was suffcient to

discipline McWane. See ID376-377; contra RA20 (incorrectly suggesting that any new entry

disproves market power); see also 2010 Horizontal Merger Guidelines §§9, 9.3; In re Polypore

Int'l, Inc., 2010 FTC LEXIS 97, at *87 (Dec. 13,2010) (entry must be "large enough to

constrain prices"); Rebel Oil Co. v. Atlantic Richfield Co., 51 F.3d 1421, 1440-41 (9th Cir. 1995)

("The fact that entr has occurred does not necessarily preclude the existence of 'significant'

entry barriers."); Oahu Gas Service, Inc. v. Pacifc Resources, Inc., 838 F.2d 360, 367 (9th Cir.

1988) (entry of two rivals did not preclude monopolization finding); Reazin v. Blue Cross & Blue

Shield of Kansas, Inc., 899 F.2d 951, 971-72 (10th Cir. 1990) (upholding monopoly power

finding because "no other entrant remotely approached Blue Cross' domination of the market").

As discussed more fully at Part III.B.3, infa, Judge Chappell correctly found that

McWane's Exclusive Dealing Policy impeded Star's Domestic Fittings sales and made it

unprofitable for Star to purchase a domestic foundry, thereby increasing Star's production costs

and, ultimately, its prices. ID398-411. Star's entry was insufficient to constrain McWane's

monopoly prices, and it therefore does not defeat a finding of monopoly power. See ID383;

United States v. Dentsply Int'l, Inc., 399 F.3d 181, 189 (3d Cir. 2005) (recognizing exclusive

dealing as entry barrier because it can prevent new entrant from being able to compete

effectively against incumbent firm).

This conclusion is confirmed by Judge Chappell's finding that McWane controlled

Domestic Fittings prices after Star's entry - McWane earned f L higher gross profits on

Domestic Fittings sales than imported Fittings sales, did not need to lower prices in response to

competition from Star, and imposed a price increase after Star's entry. IDF1083, 1090, 1091.

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McWane does not contest these findings. Accordingly, McWane has monopoly power in the

Domestic Fittings market. See ID38 1.

B. McWane Monopolized and/or Attempted to Monopolize the Market for

Domestic Fittings (Counts Six and Seven)

After Star announced that it would begin sellng Domestic Fittings in Fall 2009, Mc Wane

wilfully and improperly maintained its monopoly power in the Domestic Fittings market by

impeding Star's entr. ID407-411; IDFI145-1176. The centerpiece ofMcWane's strategy was

its "all or nothing" Exclusive Dealing Policy: Mc Wane threatened Distributors that they would

lose access to McWane's Domestic Fittings and forfeit their accrued and future Domestic

Fittings rebates if they purchased Domestic Fittings from Star. IDFl173, 1176, 1179-1192.

Judge Chappell correctly found that McWane unlawfully monopolized or attempted to

monopolize the Domestic Fittings market in violation of Section 2. ID419.

The offense of monopolization has two elements: "(1) the possession of monopoly power

in the relevant market and (2) the wilful acquisition or maintenance of that power as

distinguished from growth or development as a consequence of a superior product, business

acumen or historic accident." United States v. Grinnell Corp., 384 U.S. 563, 570-571 (1966).

Attempted monopolization requires proof "(1) that the defendant has engaged in predatory or

anticompetitive conduct with (2) a specific intent to monopolize and (3) a dangerous probability

of achieving monopoly power." Spectrum Sports v. McQuilan, 506 U.S. 447, 456 (1993).

McWane's monopoly power, or dangerous probability of attining monopoly power, is discussed

at Part lILA, supra.

Conduct is exclusionary when it tends to exclude competitors "on some basis other than

efficiency," i.e., when it "tends to impair the opportunities of rivals" but "either does not further

competition on the merits or does so in an unnecessarily restrictive way." Aspen Skiing Co. v.

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Aspen Highlands Skiing Corp., 472 U.S. 585, 605 & n.32 (1985) (citations omitted). Here,

McWane's Exclusive Dealing Policy harmed competition by foreclosing a substantial share of

the "critical" distribution channel, thereby impeding entr. More specifically, McWane's Policy

prevented rivals from gaining a sufficient scale to constrain McWane's exercise of monopoly

power.

'I

1. McWane Implemented an Exclusive Dealing Policy

McWane broadly denies that it launched and implemented an exclusive dealing policy.

These arguments simply ignore Judge Chappell's amply-supported findings.

The Exclusive Dealing Policy was not, as McWane contends, a mere rebate program.

RA28-29 (repeating arguments that Judge Chappell found to "mischaracterize the nature and

effects of the Full Support Program." ID402). "Extensive evidence" establishes that McWane's

Policy was an "all-or-nothing" exclusive dealing program: Distributors were notified that they

could not purchase Domestic Fittings from both McWane and a rival supplier. ID403.

McWane asserts that the company terminated its Exclusive Dealing Policy in early 2010,

citing IDF1173. RA38-39. Finding 1173 says no such thing. McWane's Exclusive Dealing

Policy has never been withdrawn and, from the perspective of Distributors, it continues to

prevent them from purchasing from Star today. McWane admits that it never publicly

abandoned its Policy. CCPF2012-2014,2064-2067.

This was also not a "short-term" restraint. Because only Mc Wane offered a full line of

Domestic Fittings, it was not economically practical for most Distributors to drop Mc Wane and

switch to Star. ID405-407. In this context, McWane's all-or-nothing Policy is effectively of

indefinite duration. The Third Circuit endorsed this analysis in Dentsply, explaining that the

coercive effect of a policy of terminating customers that deal with a rival can "realistically"

make a nominally at-wil arrangement "as effective" a mechanism of exclusion as a long-term

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contract. 399 F.3d at 193; see also Lorain Journal Co. v. United States, 342 U.S. 143, 149-50

(1951) (unilateral conduct of indefinite duration by incumbent monopolist with a "practically

indispensable" service "forced numerous (customers) to refrain from" dealing with its rival). In

addition, McWane told Distributors that if they purchased Domestic Fittings from Star "they

can't buy from us EVER again." IDF1179. This message reinforced the coercive effect.

Finally, McWane's claim that it did not meaningfully enforce its Exclusive Dealing

Policy (RAB29 n.7) is belied by its termination of Hajoca for purchasing Domestic Fittings from

Star. Hajoca was not reinstated as a Domestic Fittings Distributor until after McWane became

aware of the Commission's investigation. IDFI193-1227; see also Hosp. Corp. of Am. v. FTC,

807 F.2d 1381, 1384 (7th Cir. 1986) (events after respondent becomes aware of investigation are

"subject to manipulation... (and) entitled to little or no weight").

2. McWane Acted with a Specific Intent to Monopolize

Whereas for monopolization "the mere intent to do the act" is sufficient, United States v.

Aluminum Co. of Am., 148 F.2d 416, 431-32 (2d Cir. 1945), attempted monopolization requires

proof that the defendant had a "specific intent to destroy competition or build monopoly."

Times-Picayune Publ'g Co. v. United States, 345 U.S. 594, 626 (1953); accord Spectrum Sports,

506 U.S. at 456.

Here, McWane "implemented the Full Support Program with the specific intent of

preventing Star from entering and lowering prices in the Domestic Fittings market." ID416-418;

see also IDF 1154 (Mc Wane keeping Distributors from Star because "(t)hat's how the cancer

starts"). For example, McWane's National Sales Manager wrote regarding the Policy: "We

don't want the market (prices) tumbling and if we keep everyone on board (using the Policy) we

shouldn't have to drop prices." IDF1153.

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McWane's goal to maintain high prices by preventing Star from becoming a legitimate

competitor does not - as McWane contends - merely reflect an "'intent' to beat a competitor."

RA33. McWane did not want to out-compete Star by providing better services, products or

prices, but instead wanted to avoid having to compete with Star at all, by keeping it weak or out

of the market. Eg. IDF1152. McWane's intent to avoid competition is distinct from the

laudable intent to win competition. See Aspen Skiing, 472 U.S. at 609 n.39 (specific intent

shown by documents and testimony that defendant intended to "drive others from the market by

means other than superior effciency").

3. McWane's Exclusive Dealing Policy Injured Competition

In exclusive dealing cases, a prima facie case of competitive harm is established by

demonstrating: (1) a significant degree of market foreclosure; and (2) the impairment of one or

more significant rivals' ability to compete. ZF Meritor, LLC v. Eaton Corp., 696 F.3d 254,271

(3d Cir. 2012); Dentsply, 399 F.3d at 188-190, 194-96 (considering foreclosure and impairment

on rivals' abilty to compete); Microsoft, 253 F.3d at 69 (same); In re McWane, Inc., 2012 FTC

LEXIS 155, at *63 (Sept. 14,2012) ("(T)he question here is whether McWane's conduct

foreclosed a substantial portion of the effective channels of distribution, and whether the conduct

had a significant effect in preserving McWane's monopoly."). McWane's specific intent to harm

competition is also useful in understanding the Policy's likely effects. See Bd. of Trade of the

City of Chicago v. United States, 246 U.S. 231, 238 (1918) (intent helpful to "interpret facts and

to predict consequences"); Aspen Skiing, 472 U.S. at 602-03 (same).

a) McWane's Exclusive Dealing Policy Foreclosed a Substantial

Share of the Domestic Fittings Market

Foreclosure percentages are traditionally calculated by determining the percentage of the

downstream market subject to the challenged policy. Omega Envtl., Inc. v. Gilbarco Inc., 127

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F.3d 1157, 1162 (9th Cir. 1997) (calculating market foreclosure percentage as the percentage of

market sales made by the defendant subject to the exclusivity policy). Here, McWane sold

f L of all Domestic Fittings in 2010, roughly 99% of those sales were through Distributors,

and all Distributors were subject to McWane's Exclusive Dealing Policy, resulting in a

foreclosure percentage of f l. See IDF357, in camera; CCPF475. This traditional

foreclosure percentage is more than suffcient for a monopolization claim. Microsoft, 253 F. 3d

at 70 (foreclosure ofless than 50 percent may be suffcient); Areeda iì1821 (foreclosure above 50

percent is "routinely condemned"). As Judge Chappell found, the unforeclosed distributors did

not provide Star with sufficient sales opportnities to operate at an efficient scale. ID41O-411.7

A more conservative approach measures foreclosure only among those customers that

were ready, wiling, and able to shift some sales to the rival but-for the policy at issue. Joshua D.

Wright, Moving Beyond Naïve Foreclosure; 19 GEO. MASON L. REv. 1163, 1165 (2012). This

methodology, although not required by existing case law, excludes from the foreclosure

percentage those customers that were disinterested in doing business with the rival (at current

prices) for reasons entirely unrelated to the challenged policy. Under this approach, when the

foreclosed sales opportunities that would have been otherwise available to the rival are greater

than the additional sales volume that the rival needs to become a more efficient competitor,

foreclosure is substantial, a prima facie case of monopolization has been established (assuming

power has been shown), and efficiencies should be examined.

7 The traditional approach is useful because it "is potentially an easily administrable, relatively

low-cost fiter for identifying exclusion claims unlikely to raise competitive concerns." Joshua

D. Wright, Moving Beyond Naïve Foreclosure Analysis, 19 GEO. MASON L. REv. 1163, 1182

(2012); see also Microsoft, 253 F.3d at 69 ("(T)he requirement of a significant degree of

foreclosure serves a useful screening function.").

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Even under this conservative approach, McWane's Exclusive Dealing Policy caused

substantial foreclosure. Under McWane's Policy, Distributors interested in giving some business

to Star would be forced to rely entirely on Star (a company with an incomplete line) for all of

their Domestic Fittings needs. This was a cost that Distributors could not accept. ID405-407;

CCPF2091-2095. Specifically, Star was unable either to compensate Distributors for the

commercial risk imposed by McWane's Policy (IDF1393), or to compete on the all-or-nothing

terms imposed by McWane. ID407 (the Policy was "unilaterally imposed on Distributors; there

was no competition to become the exclusive supplier" of Domestic Fittings). Importnt national,

regional and local Distributors (and U.S. Pipe) did not deal with Star, specifically because of

McWane's Policy. ID390-397,407-409.8 These are the deterred Distributors. For example,

after McWane issued its Policy, HD Supply and Ferguson forbade their branches from

purchasing Domestic Fittings from Star unless those purchases fell into one of the Policy's two

exceptions. IDFI239-1251; 1261 1263; CCPFI938-1953; see also IDFI282-1312 (U.S. Pipe);

IDF1331-1345 (WinWholesale); IDF1313-1330 (Groeniger); IDF1357-1364 (Ilinois Meter);

CCPF2018-2019 (C.I. Thornburg); CCPF1896 (E.J. Prescott). After McWane implemented the

Exclusive Dealing Policy, Distributors withdrew from Star requests for bids valued at over $10

milion. IDF1395.9

8 The fact that under cross-examination Complaint Counsel's economist could not remember the

specific names of deterred Distributors identified in his report does not undermine Judge

Chappell's extensive findings on point. Contra RAlO, 19.

9 There is no requirement for Star to be a perfect competitor, or for the Exclusive Dealing Policy

to be the only reason Distributors would not deal with Star (contra RAl1-12, 29-30); only, as

Judge Chappell found, that McWane's Policy was a "material" cause of Star's foreclosure. Eg.,

Gulf States Reorganization Group, Inc. v. Nicor Corp., 466 F.3d 961, 965 (11th Cir. 2006);

Conwood Co. v. Us. Tobacco Co., 290 F.3d 768, 791 (6th Cir. 2002). Accordingly, the

contention that there was a significant volume of sales that Star failed to capture for reasons

unrelated to exclusive dealing does not rebut the prima facie case.

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But for the Policy, the deterred Distributors would have offered Star suffcient sales

opportunities for it to achieve economies of scale and become a more effective constraint on

McWane's monopoly power. Simple arithmetic confirms the anticompetitive exclusion. Star

had f L milion in Domestic Fittings sales in 2010 and again in 2011, and needed an

additional f L milion in annual sales to justify purchasing a domestic foundry. IDF1143,

1400. The deterred Distributors accounted for at least 53 percent, or f L milion, of Domestic

Fittings purchases in 2010, a volume more than suffcient to provide Star's needed economies of

scale. IDF378-379 (collective share ofHD and Ferguson in the Fittings market exceeds 53

percent); RX-632 at 27, in camera (2010 McWane Domestic Fittings sales were f L

milion). 

10

McWane's contention that Star sold at least one Domestic Fitting to f L customers is

meaningless. RAB8, 28-29; IDF1142 (count included any Distributor that purchased Fittings,

regardless of amount). The Distributors testified (without contradiction) that their small and

sporadic purchases of Star's Domestic Fittings did not trigger the Exclusive Dealing Policy's

penalties because they fell into two limited exceptions permitted by McWane's Policy (i.e.,

10 While the deterred Distributors' market shares do not represent a precise percentage of 

the

actual sales that would have shifted to Star absent the Policy, a Government plaintiff seeking an

injunction need not "confidently reconstrct ... (the) world absent the defendant's exclusionary

conduct." Microsoft, 253 F.3d at 79. Proof of the excluded rival's win rate in the but-for world

would require speculative assumptions about the magnitude of brand loyalty, switching costs,

and the wilingness of customers to experiment with new suppliers. See Wright, Naïve

Foreclosure, 19 GEO. MASON L. REv. at 1185-86 (expressing skepticism that such an approach

could "accurately predict, with an acceptable margin of error, the probability a potential entrant

wil succeed in head-to-head competition(,)" and concluding that this "lack of administrability"

is a significant weakness relative to the traditional approach to measuring foreclosure). It is

sufficient that McWane's conduct "reasonably appear(s) capable of making a significant

contribution to ... maintaining monopoly power." Areeda iì651c; Microsoft, 253 F.3d at 79.

Further, once exclusionary conduct has been shown, doubts about causation are resolved against

the monopolist. Microsoft, 253 F.3d at 79.

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bundled pipe-Fitting sales, or specific Domestic Fittings McWane could not timely deliver).

ID402-404. Moreover, to establish aprimafacie case of competitive harm, the relevant inquiry

is not total foreclosure, but "whether the challenged practices bar a substantial number of rivals

or severely restrict the market's ambit." Dentsply 399 F.3d at 191; see also Microsoft, 253 F.3d

at 68-71; ZF Meritor 696 F.3d at 265, 283-84 (condemning exclusive dealing that allowed

customers to purchase up to 20% of requirements from rival); Insignia Sys., Inc. v. New Am.

Mkg. In-Store, Inc., 661 F. Supp. 2d 1039, 1064-65 (D. Minn. 2009) (finding exclusive dealing

claim viable despite plaintiff having sold services to over 60 customers). As discussed above,

and as Judge Chappell correctly found, the volume of commerce foreclosed to Star by

McWane's Exclusive Dealing Policy was substantialY

b) McWane's Exclusive Dealing Policy Prevented Star from

Competing Effectively and Injured Competition

Star had no viable alternatives to the foreclosed Distributors. Entry into waterworks

distribution is difficult, and neither de novo entrants into waterworks distribution nor distributors

in adjacent markets are well-positioned to serve as alternatives to the foreclosed waterworks

Distributors for an excluded rival like Star. CCPF532-542. Vertical integration into waterworks

distribution is not a cost-effective alternative to access to the foreclosed Distributors. CX2537

(McCutcheon, IHT (VoL. 1) at 41-46), in camera (f

D; see also IDF402. "For a Fittings supplier, Distributors

are an important link in the supply chain and access to Distributors is essential for effectively

ii Star had no exclusive agreements; the fact that f L Distributors never purchased Domestic

Fittings from McWane simply means that they were not significant market participants.

Moreover, McWane implemented its Policy before Star was a full-line supplier; it was therefore

impossible for Star to compete for an exclusive because Distributors potentially needed to

purchase at least some Domestic Fittings from McWane. ID407.

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reaching the End User." ID408 (discussing the numerous advantages Distributors offer, which

results in "(v )irtually all Fittings (being) sold through Distributors").

Where, as here, access to distribution is critical to effective competition, substantial

foreclosure from such distribution predictably raises a rival's costs of servicing customers and

likely makes the rival a less effective competitor. This establishes a primafacie case of

competitive harm. Dentsply, 399 F.3d at 188-191, 193 (foreclosing rivals from consumers'

"preferred distribution channels" I's prima facie anticompetitive); Microsoft, 253 F .3d at 69-71

(foreclosing rivals from "most effcient" distribution channels is prima facie anticompetitive);

Jonathan M. Jacobson, Exclusive Dealing, "Foreclosure," and Consumer Harm, 70 ANTITRUST

L.J. 311, 313 (2002) (substantial foreclosure from distribution tends to prevent meaningful price

competition and "gives the defendant the ability (or greater abilty) to raise prices over the

competitive leveL"); Thomas G. Krattenmaker & Steven C. Salop, Anticompetitve Exclusion:

Raising Rivals' Costs to Achieve Power over Price, 96 YALE L.J. 209, 224-239 (2006)

(discussing cases recognizing harm from raising rivals' costs).

Separate from raising competitors' costs of distribution, exclusive dealing may impair

rivals' abilty to compete by depriving these firms of "a share of distribution suffcient to achieve

minimum efficient scale." Wright, Naïve Foreclosure, 19 GEO. MASON L. REv. at 1166;

LePage's, Inc. v. 3M, 324 F.3d 141, 161 (3d Cir. 2003) (foreclosing rival suppliers from "key

large volume customers" that were "essential to achieving effciencies of scale" anticompetitive);

Dentsply, 399 F.3d at 188-191 (condemning exclusive dealing policy that blocked access to

"key" distribution, which impeded rivals from expanding to where they could pose "real threat"

to defendant's monopoly power); Microsoft, 253 F.3d at 69-71 (condemning exclusive dealing

that kept rivals below "critical level" necessary to pose threat to defendant's monopoly). As

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Judge Chappell correctly found, that is precisely what happened here. ID410-411 (by

foreclosing Star's access to Distributors, McWane's Policy "hindered Star's ability to compete

effectively").

Star's business plan was to grow its "virtal manufacturing" operation to the point where

it could purchase and profitably operate its own domestic foundry. McWane's Policy prevented

Star from reaching minimum effcient scale, purchasing its own domestic foundry, and

constraining McWane's monopoly prices. ID411; IDF1097-1099; CCPFl722, 1729-1732.12

When McWane implemented its Policy, f

l. Star concluded that the Policy precluded its major customers from buying

its Domestic Fittings and f

l IDF1381-1392, 1408, in camera. McWane's Policy thus thwarted Star's plans to

acquire a domestic foundry, and forced Star to continue working with independent foundries,

which McWane admits is less effcient -- increasing Star's costs by f l. IDF1419, in

camera; IDF1409; RAll, 29. This prevented Star from lowering its Domestic Fittings prices

by f l. ID411; IDF1420, in camera.

This evidence - McWane's monopoly power, substantial foreclosure, and a resulting

diminution of a significant rival's ability to compete - establishes a prima facie case of

monopolization (and attempted monopolization). And Star was not the only victim of

McWane's Exclusive Dealing Policy. The Policy also harmed competition by deterring SIP, a

12 Thus, contrary to McWane's assertion, Judge Chappell did not find that Star's entry was

"significant" or "successfuL." RA8.

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small Fittings importer, from entering the Domestic Fittings market. ID411, nAO; IDF1365-

1380.

c) McWane's Effciency Justification Fails

Because the evidence establishes aprimafacie case of competitive injury, the burden

shifts to McWane to proffer a pro competitive justification for its Exclusive Dealing Policy.

Kodak, 504 U.S. at 483. The analysis must focus upon the benefits, if any, that consumers

receive from the exclusive dealing, and not on those advantages that inure to Mc Wane alone.

Microsoft, 253 F.3d at 71. McWane advances a purported "free-riding defense." However,

Mc Wane's argument evinces a fundamental misunderstanding of the concept.

In some industries, exclusive dealing can remedy a bona fide free-riding problem. See

Ryko Mfg. Co. v. Eden Servs., 823 F.2d 1215, 1234 n.17 (8th Cir. 1987); Richard M. Steuer,

Exclusive Dealing in Distribution, 69 CORNLL L. REv. 101, 127 et seq. (1983). For example,

when a supplier invests in improving its independent distributors, exclusive dealing may prevent

that supplier's investment from being appropriated by a rival supplier. Steuer, Exclusive

Dealing, 69 CORNLL L. REv. at 127-28.

Exclusive dealing is not, however, the norm in the Fittings industry. Suppliers do not

typically invest in Distributors, and Distributors typically purchase and re-sell imported Fittings

from multiple suppliers. IDF391-393. The industry apparently finds this arrangement to be

efficient. McWane's Exclusive Dealing Policy represents a marked departure from prevailng

industry practice, one not observed outside the context of monopoly maintenance. McWane's

efficiency arguments should be evaluated against this backdrop.

Mc Wane does not claim that it makes any investment in its Distributors upon which Star

could free-ride. Rather, according to McWane, its Exclusive Dealing Policy was necessary to

prevent customers from "cherry pick(ing) the highest-selling, fastest-moving items '" from Star,

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while purchasing from McWane only the slower-moving, infrequently-needed and higher-cost

'c' and 'D' items." RAB39-40. According to McWane: "This practice could lead to the

collapse of the full-line seller." RX-712A (Normann Rep. at 54).

McWane's claim that, absent exclusive dealing, it would be forced to close its domestic

foundry is speculation for which there is no supporting evidence. This alone mandates rejection

of the defense. See Dentsply, 399 F.3d at 185, 197.

McWane's argument also fails because Star's effort to compete with McWane by sellng

a limited line of Domestic Fittings is not free-riding. Star does not benefit from McWane's

investment in manufacturing oddball Domestic Fittings. Moreover, Star's strategy of initially

selling the most-commonly used Domestic Fittings is a legitimate form of competition - a

business strategy suitable for a new entrant. As Judge Posner explains, "(p )iecemeal entry is the

norm in most industries" because entering with a full line of products is often riskier, more

diffcult, and more time-consuming. Richard A. Posner, ANTITRUST LAW 251-53 (2d ed. 2001)

("The point is not that the new entrant would have to invest more capital but that it would have

to embark on a riskier enterprise, that of creating not a single successful product but a whole line

of such products."). A similar "cherr-picking" argument was rejected by the Supreme Court in

Kodak: "This understanding of free-riding has no support in our case law.... (O)ne of the evils

proscribed by the antitrust laws is the creation of entry barriers to potential competitors by

requiring them to enter two markets simultaneously." Kodak, 504 U.S. at 485.

As for Mc Wane's asserted fear that it would be driven from the market, the antitrust laws

do not afford McWane an inherent right to competitive success. IfMcWane is an ineffcient,

high-cost producer, then McWane's decline and even its exit may represent the competitive

market outcome. See Union Leader Corp. v. Newspapers of New England, Inc., 284 F.2d 582,

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i

584 nA (1st Cir. 1960) (public benefits from free competition "even though that competition be

an elimination bout"). Even the risk that Star's competition would end the domestic manufacture

ofrare or "oddball" Fittings does not justify McWane's anticompetitive efforts to exclude Star.

The free market economy, not Mc Wane, should dictate the product mix. See generally Freeman

v. San Diego Ass'n of Realtors, 322 F.3d 1133, 1152 (9th Cir. 2003) ("Antitrust law presumes

that competitive markets offer suffcient incentives and resources for innovation.. ..").

For these reasons, McWane's contention that its full-line strategy should be insulated

from competition is "nothing less than a frontal assault on the basic policy ofthe Sherman Act."

Nat'l Soc yof Prof'l Eng'rs v. United States, 435 U.S. 679, 695 (1978)..

d) Exclusion of Less Effcient Competitors is Not a Defense

Mc Wane also contends that the exclusion by a monopolist of a less efficient rival does

not harm the competitive process, and is not actionable under the antitrust laws. RAB29-32.

This argument rests upon invented evidence, a misreading of the case law, and poor competition

policy - a perfect storm.

First, the evidence cited by Mc Wane (ID411) indicates that Star was a less effcient

supplier than Star would be but-for McWane's Exclusive Dealing Policy. RAB29. The evidence

does not establish that Star was a less effcient supplier than McWane. In fact, McWane's freeriding justification relies on the opposite assumption - that McWane is an inefficient supplier

that must frustrate consumer demand for Star's product in order to remain in business.

Second, exclusive dealing law is often invoked to protect from anti competitive tactics

firms that are initially small and ineffcient, but have the potential over time to become more

effcient and thus constrain the defendant's exercise of monopoly power. Eg., ZF Meritor, 696

F.3d at 281 (exclusion of "potentially equally efficient rivals" is actionable); Dentsply, 399 F.3d

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at 191 (monopolist's exclusive dealing kept rivals' sales "below the critical level necessary for

any rival to pose a real threat" to defendant).

None of the cases cited by McWane holds that a monopolist is free to use anticompetitive

tactics to exclude a less effcient rivaL. Instead, Mc Wane's cases hold that the defeat of a less

efficient rival due to the monopolist's greater effciency (e.g., lower costs, superior quality) is

permissible under Section 2. See Cascade Health Solutions v. Peacehealth, 515 F.3d 883, 903

(9th Cir. 2008) (injury to rival caused by above-cost bundled discount not actionable); Concord

Boat Corp v. Brunswick Corp., 207 F.3d 1039, 1061 (8th Cir. 2000) ("above cost discounting is

not anticompetitive"); Barry Wright Corp. v. ITT Grinnell Corp., 724 F.2d 227, 235-36 (1st Cir.

1983) (same). Complaint Counsel does not dispute the proposition that the antitrust laws permit

a monopolist to engage in aggressive but effcient forms of competition. But McWane's conduct

was not effcient.13

Finally, the policy advocated by McWane - permitting a monopolist to exclude less

efficient rivals through anticompetitive tactics - is contrary to the antitrust laws' consumer

welfare objectives. Market entry by a less efficient rival can stimulate competition, leading to

lower prices if an incumbent dominant firm is charging monopoly prices:

For example, assume that a dominant firm has costs of$l, but is

currently charging $2. The entry of a rival pricing at $1.50 could

prompt a decrease in prices, even if the new entrant has costs of

$1.25. Hence a distribution strategy that drives this "less efficient

rival" from the market certinly could harm consumer welfare.

13 McWane incorrectly cites (RAB30-31) language from Allied Orthopedic Appliances Inc. v.

Tyco Health Care Group LP, 592 F.3d 991, 996-97 (9th Cir. 2010), which was a case addressing

market-share discounts. There, the Court found no exclusion because the agreements were easily

terminable if competitors offered a superior product. !d. Here, Distributors that wanted to

purchase a portion of their requirements from Mc Wane could not do so because of the threat of

being "cut off' by McWane. ID410.

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Andrew i. Gavil, Exclusionary Distribution Strategies by Dominant Firms: Striking a Better

Balance, 72 ANTITRUST L.J. 3, 59 (2004); accord Steven C. Salop, Exclusionary Conduct, Effect

. i

on Consumers, and the FlawedProfit-Sacrifce Standard, 73 ANTITRUST L.J~ 311, 328 (2006)

("The fundamental problem with applying the equally efficient entrant standard... is that the

unencumbered (potential) entry ofless-effcient competitors often raises consumer welfare.").

The equally efficient rival requirement is especially inappropriate when applied to a

market (like Domestic Fittings) where competition is just starting to emerge. "True, the

exclusion of the less efficient firm might not have harmed competition at that precise moment

because the rival had yet to reach its potential, but Section 2' s horizon should not be so clipped if

it is to function as an adequate deterrent to strategic behavior that impairs long-run competition."

Gavil, Exclusionary Distribution, 72 ANTITRUST L.J. at 59-60; see also Microsoft, 253 F.3d at 79

(monopolization law proscribes improper exclusion of "nascent competitive technologies" as

well as "producers of established substitutes").

In sum, the evidence does not show that Star was less efficient than Mc Wane, and even if

Star were less efficient, this would not be a valid Section 2 defense. Indeed, the source of

competitive problem here is that McWane improperly impeded Star from becoming an effcient

supplier.

C. The MDA Unreasonably Restrained Competition in the Domestic Fittings

Market (Count Four)

Sigma anticipated that ARR would lead to significant growth in the Domestic Fittings

market, and resolved to enter in one of two ways: either Sigma would become a "virtal

manufacturer" and produce Domestic Fittings through independent U.S. foundries; or Sigma

would purchase Domestic Fittings from McWane. IDF1423. Sitting on the sidelines was

unacceptable to Sigma's executives. IDF1424; CCPFI573, 1622-1624. Sigma pursued both

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strategies simultaneously. Initially, McWane had little interest in sellng Domestic Fittings to

Sigma. IDFI425-1428. But as Sigma progressed toward independent entry, McWane improved

the commercial terms it offered: from terms it knew were uneconomical for Sigma, to terms

suffcient to convince Sigma to abandon independent entry. IDF1435-1445 (in June, McWane

estimated Sigma needed 20% discount to be viable, but offered only 5% discount); IDF1509-

1516 (McWane feared increasing likelihood of Sigma entry); IDF1529 (McWane in July offered

20% discount).

Through the MDA, McWane and Sigma agreed that Sigma would abandon its

independent entr strategy, and instead supply McWane's Domestic Fittings under terms that

assured that Sigma would not constrain McWane's exercise of monopoly power. Thus, using the

MDA, McWane extinguished a significant competitive threat to its monopoly.

Contrary to McWane's claim, the MDA was not a simple buy/sell agreement that left

Sigma free to compete with McWane. Sigma's agreement to abstain from its own domestic

entry is memorialized in Section l(b) of the MDA: "McWane shall be Sigma's sole and

exclusive source for Domestic Fittings." IDF1540. The MDA also assured that there would be

no meaningful downstream competition between McWane and Sigma. McWane determined

Sigma's costs (i.e., 20% discount from McWane's published prices), and controlled Sigma's

prices (i.e., weighted average of no less than 98% of McWane's published prices). IDF1548-

1553. The parties also agreed that McWane would likewise sell Domestic Fittings at a weighted

average price of no less than 98% of its published prices. CCPF2418-2434. When McWane

raised prices, Sigma was obliged to follow. IDF1554-1557. Finally, through the MDA,

McWane controlled Sigma's customer base. Under Section 1 (c) of the MDA, Sigma agreed that

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it would not sell Domestic Fittings to U.S. Pipe or to any Distributor that violated McWane's

Exclusive Dealing Policy. IDFI558-1565; CCPF2441-2448.

Contrary to McWane's assertion (RA36), there is no evidence that Sigma ever undercut

McWane's prices by varying its rebates, cash discounts, or freight terms. The MDA negotiating

history shows that the agreement was understood and intended by the parties to eliminate all

price competition. Sigma's Mr. Pais admitted: "with the (MDA) pricing, we are obliged to be as

close to the published multiplier as possible. Our hands are not tied - but we cannot sell below

because it wil undermine McWane's own sales." IDF1553; see also CX0248-002 (during MDA

negotiations, McWane told Sigma that it wanted "a partner that wil support the market price").

The elements of a Section 1 violation are (1) a contract, combination, or conspiracy

between two or more separate entities, that (2) unreasonably restrains competition. Realcomp II,

Ltd. v. FTC, 635 F.3d 815,824 (6th Cir. 2011). McWane does not contest that the MDA

satisfies the concerted action requirement. See United States v. Delta Dental, 943 F. Supp. 172,

175 (D.R.I. 1996) ("(C)oncerted action may be amply demonstrated by an express agreement.").

The mode of analysis of the MDA's competitive effects depends in part upon whether the

Commission concludes that Sigma was a potential (reasonably likely) entrant, or instead a

nascent entrant (a firm whose successful entry was less clear). If Sigma is judged to be a

potential entrant, then the MDA should be condemned as a per se unlawful (or inherently

suspect) market division agreement. Alternatively, the MDA should be judged unlawful under

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the full rule of reason: by agreement, a monopolist eliminated future competition with either a

potential or nascent rivaL. 

14

1. Sigma Was a Potential Competitor

For purposes of a Section 1 claim by a Government plaintiff seeking injunctive relief, a

firm is considered a potential competitor if its entry is "reasonably probable" in the absence of

the relevant agreement, as evidenced by the firm's intent and abilty to enter the relevant market.

See, e.g., McWane, 2012 FTC LEXIS 155, at *55 n.18; Yamaha Motor Co. v. FTC, 657 F.2d

971,977-79 (8th Cir. 1981); Engine Specialties, Inc. v. Bombardier, Ltd., 605 F.2d 1,9 (1st Cir.

1979); Fed. Trade Cmm'n & U.S. Dep't of Justice, Antitrust Guidelines for Collaborations

Among Competitors, at § 1.1 n.6 (2000); see also CCPB 182-83. It is not necessary that entry be

easy, risk-free, or even more likely than not. The Commission's entry analysis should be

pragmatic and not mathematicaL. Thus, when a firm invests significant time and resources

toward market entry, then abandons those efforts because of an agreement with the incumbent

firm, and the incumbent anticipated the would-be rival's entr, courts find that the potential

competitor standard has been satisfied. Eg., Bombardier, 605 F.2d at 9; Yamaha, 657 F.2d at

977-979; see also FTC v. Actavis, Inc.; 570 U.S. _' slip op. at 19-20 (June 17,2013).15

The Supreme Court's Actavis decision does not use the term "potential competitor," but

ilustrates the concept at issue here. According to the complaint in that case, generic rivals were

attempting to enter the market in competition with defendant Solvay's brand name drug

14 Because the evidence shows that Sigma is a potential competitor and/or a nascent rival,

McWane's contention that the MDA is a purely vertical restraint is incorrect. See Areeda

iì1901b.

15 In analyzing potential competition, McWane and Judge Chappell incorrectly rely upon Section

2 cases brought by private plaintiffs who are required, under Section 4 of the Clayton Act, to

establish injury to their business in order to establish antitrust standing. ID423-424; RAB33-34.

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Androgel, and Solvay paid these generic rivals to stay out of the market in order "to prevent the

risk of competition." Actavis, slip op. at 19. Eliminating the risk of increased competition

constituted "the relevant anti competitive harm." Id; see also Areeda iì2030b ("The law does not

condone the purchase of protection from uncertin competition any more than it condones the

elimination of actual competition.").

The Commission has concluded that the antitrust objective of protecting prospective and

uncertin competition is not limited to the patent context:

The uncertainty posed by patent litigation is, of course, only one of

many types of uncertinty that affect whether a new product can be

successfully introduced into a market. But the existence of such

uncertainties cannot justify an agreement whose very purpose is to

ensure against an increase in competition, by guaranteeing that the

new product wil not be introduced. If, for example, an incumbent

entered into an agreement with a would-be market entrant in which

the latter agreed to delay or forgo introduction of a new product, it

would be no defense to argue that the new product might not have

succeeded in any event.

In re Schering-Plough Corp., 136 F.T.C. 956, 995 n.62 (2003), rev'd, Schering-Plough Corp. v.

FTC, 402 F.3d 1056 (11th Cir. 2005), later abrogated by Actavis, 570 U.S. _ (2013). The

category of potential competitors includes, then, firms that "might not have succeeded" even

absent the challenged arrangement. Id.

Here, Judge Chappell found, and Mc Wane does not contest, that "the evidence amply

shows that Sigma had the desire and had expressed an intent to enter the Domestic Fittings

market." ID422-423; see also CCPF2176 (entering the Domestic Fittings market was Sigma's

"#la priority"). Further, contemporaneous evidence establishes that Sigma "had 'available

feasible means' for entering the relevant market." Yamaha, 657 F.2d at 977 (quoting United

States v. Marine Bancorporation, 418 U.S. 602, 639 (1974)). Until the MDA, Sigma was in fact

marching towards entry. The uncontested facts show:

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o In early 2009, Sigma pursued the "virtual manufacturing" option for producing

Domestic Fittings whereby domestic foundries would produce Fittings for Sigma

with Sigma's engineering, design, quality control, and logistical support

(IDF1446; CCPF60);

o Sigma executives had experience and expertise at "virtal manufacturing" from

its imported Fittings business, and had extensive experience in United States

foundry work and Fittings manufacturing (IDFI447, 1451);

o Sigma created a Sigma Domestic Production (SDP) plan and assembled highlevel executives and engineers responsible for investigating all aspects of

Domestic Fittings production from beginning to end (IDFI447, 1450);

o Sigma spent $50,000-75,000 investigating domestic production options

(IDF1449);

o Sigma identified the "critical mass" of 730 configurations to produce a full-line of

Domestic Fittings, and the 450 core patterns needed to produce them (IDFI468);

o By June 2009, Sigma had detailed action plans for identifying the top Fittings,

foundries, molding machines, cost modeling, testing of lost foam production

technology, and visits to potential foundry partners (IDFI454);

'I

o By June 2009, Sigma had identified the top 50 foundries for producing Domestic

Fittings, placed orders for foam patterns and other production equipment,

arranged foundry visits, and produced two high-quality sample or prototype

Domestic Fittings (IDFI456-1458, 1461);

o Sigma visited and received attractive price quotes from foundries capable of

producing castings for Domestic Fittings (IDFI459; CCPF2239-2244);

o U.S. Pipe and ACIPCO, two important OEM customers that owned foundries and

had expertise casting Domestic Fittings, worked cooperatively with Sigma to help

Sigma set up domestic production (IDF 1462); and

o Sigma sold three of its sample Domestic Fittings for use in waterworks projects.

(CCPF2252).

At trial, Sigma sought to minimize its readiness to enter the Domestic Fittings market.

Even so, Sigma executives admitted under oath that but for the MDA, Sigma would have entered

the Domestic Fittings market, and that by the time Sigma signed the MDA, it was ready to enter

domestic production "once the switch was flipped." CCPF2265-2266; see also IDF1543-1546

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(Sigma abandoned entr because of the MDA).16 Sigma used the threat of imminent entry to

secure better MDA terms from McWane. IDFI439-1445, 1509-1516, 1529. This evidence

establishes that Sigma was a potential competitor. For example, in Bombardier, the court

determined that the potential competitor standard was satisfied based on evidence that (i) the

would-be rival had intent to enter; (ii) the would-be rival had developed prototypes and the

ability to produce parts; (iii) the agreement replaced the plans to enter; and (iv) the threat of entry

improved agreement terms. 605 F.2d at 10.

McWane's belief that Sigma was prepared to enter the Domestic Fittings market

reinforces this point. Mc Wane entered into the MDA to avert the competitive threat of Sigma's

independent entr. ID431. In a June 29, 2009, presentation, Mr. Tatman explained that

McWane would benefit more from sellng Domestic Fittings to Sigma (at a discount) than from

competing with it:

If (Sigma is) truly committed to make the investment level

required to be a viable competitor regardless of our actions, then

producing for (Sigma) is probably of greater financial benefit to

our business than having them source elsewhere.

IDF1518. Mr. Tatman effectively admitted that Sigma was a potential entrant when he explained

McWane's reason for entering into the MDA to his sales force:

(T)he reality of the situation is that in the absence of the MDA

with (McWane), Sigma was going to develop their own domestic

sourcing options to the extent they could.

16 Even the September 9, 2009 report to the Sigma Board of Directors (cited by Judge Chappell,

ID428) acknowledges that the impetus for abandoning independent entr was that McWane had

offered an MDA with "better terms." CCPF2356-2357 (report drafted after McWane and Sigma

agreed on the material terms of the MDA, as embodied in their August 24,2009 Letter ofIntent).

In his investigational hearing, Sigma's President Mr. Pais admitted that Sigma would have

entered the Domestic Fittings but-for the MDA: "then we certainly would have gone another - to

Plan B, which is our (domestic) production." CCPF2266.

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CCPF2320,2335. McWane executives repeatedly referred to the MDA an as "insurance policy"

against Sigma's likely entry into the Domestic Fittings market. IDF1530, 1579. This evidence

that McWane identified Sigma as likely to enter, and sought to prevent it from doing so through

the MDA, is additional strong evidence that Sigma was a potential competitor.

McWane contends that Sigma was in a "precarious" financial position in 2009, and was

therefore incapable of entering the Domestic Fittings market. RAB22, 34. This argument is

factually incorrect. Sigma had the financial resources to enter the Domestic Fittings market.

From the launch of the Sigma Domestic Production plan, Sigma was aware of its financial

resources and the costs associated with domestic production. Eg., IDFI488-1498; CCPF2287

(Sigma was aware of debt covenant issues in January 2009 when it began planning domestic

production); CCPF2299 (Sigma knew of the challenges involved in domestic production as early

as May 2009). If lack of money were an insurmountable problem, Sigma certinly would not

have wasted the significant resources it expended marching toward entry.

At trial, Mr. Pais claimed that Sigma shareholders determined at a July Board meeting

that they would not provide finances for entry. IDF1501. This story is disproven by Sigma's

contemporaneous documents. Just two days before the July Board meeting, Mr. Pais wrote that

Sigma was "intensely pursuing our SDP (Sigma Domestic Production) plans" and "plan( ned) to

present a brief outline during our BOD meeting 7/15." CCPF2308. Representatives from

Frontenac (Sigma's majority shareholder) and Ares Capital (Sigma's second lien holder)

attended the meeting, and draft minutes confirm that the group was updated regarding Sigma's

entry plans. CCPF2309. There is no mention in the contemporaneous documents of anyone

suggesting that Sigma would be unable to finance its entr. To the contrary, immediately

following the July Board meeting, Frontenac executives informed Sigma's management that

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Sigma's investors were prepared to invest up to $7.5 milion to fund domestic entry and other

strategic initiatives:

Investors and rollover shareholders are prepared to invest up to

$7.5m in equity but not to pay down debt and add to liquidity but

rather to fund domestic sourcing initiative and to fund the strategic

Business additions which wil enhance credit quality and help

Sigma grow and build equity value.

CCPF2295 (emphasis added); see also CCPF2294 (prior to issuance of the Complaint, Mr. Pais

testified: "I believe in Sigma so I would definitely invest"). The $7.5 milion that Sigma's

principal shareholder offered to invest exceeded Sigma's then anticipated total entr cost. This

contemporaneous and pre-litigation evidenceprovides "(t)he best evidence that a firm is an

actual potential entrant." In re B.A.T. Indus., 1984 FTC LEXIS 4, at *153-54 n.14 (Dec. 17,

1984).

Sigma's financial activity during 2009 and early 2010 confirms that Sigma could have

financed domestic entry. During this period, Sigma: f

l (CCPF2285, 2288, in camera); considered

acquiring a foundry (CCPF2289); acquired f l which

was approximately the cost of domestic entry (CCPF2292, 2305, in camera); and elevated

discussions about acquiring Star, which would have been significantly more expensive than

domestic entr (CCPF2293).

Judge Chappell concluded that Sigma was not a potential competitor because Sigma

purportedly could not compete successfully in the Domestic Fittings market within the ARR

time period. ID428-429. The evidence does not support this conclusion. 17

17 Judge Chappell also found relevant that Sigma did not have any contracts with domestic

foundries to produce Domestic Fittings, a factor considered under the inapplicable Clayton Act

"preparedness" standard. ID427. There is no evidence, however, that such contracts are

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While ARR was one part of Sigma's motivation to enter the domestic market, Sigma

also wanted to enter the Domestic market because it believed that: (1) additional growth of the

Domestic market would outlast AR (CCPFI629-1633, 1637); and (2) it could lose imported

Fittings sales ifMcWane leveraged its monopoly in the Domestic market (CCPF1639-1644).

Sigma viewed domestic entry as a strategic imperative, not merely a short-term option, and these

considerations outlasted ARR. CCPF1629-1633 (noting rise in "domestic requests and

specifications that we expect wil stay with our industry for several years if not for the next 3-5

years or even longer"). In addition, although AR projects needed to be planned by February

2010 (IDF1 032), funds continued to be dispersed - and competition for Domestic Fittings

continued - throughout 2011. CCPF 1649-1651.

Judge Chappell (and McWane) also incorrectly focused on the time it would take Sigma

to establish a full line of Domestic Fittings in inventory, rather than the time within which Sigma

would have been a market participant. Sigma planned to enter the Domestic Fittings market

incrementally (CCPF2222-2223), and to ship Domestic Fittings "as they came off the line"

(CCPF2228). Sigma estimated that it could begin sellng any particular Domestic Fitting within

four to five months of first commissioning the tooling for that Fitting. CCPF2225. Thus, even if

Sigma did not begin ordering patterns for any Domestic Fittings until September 2009 (when it

instead signed the MDA), Sigma could have begun shipping completed Fittings by February

2010 - prior to the expiration of ARR. CCPF2226. Even piecemeal entry can have a

significant pro-competitive effect upon a monopolized market. See Posner, ANTITRUST LAW at

251-53.

necessary for entering the Domestic Fittings market. Indeed, (

CCPF2119-2120, in camera.

l

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Finally, the contention that Sigma could not have entered the Domestic Fittings market

during the AR period is unlikely in view of Star's actual entry during that same time.

IDF1094-1144; CCPF1712-178I.

2. The MDA is Per Se Unlawful and/or Inherently Suspect

At its core, the MDA is a market allocation agreement: Sigma, a potential competitor,

abandoned its entry efforts and ceded the Domestic Fittings market to McWane; McWane

compensated Sigma by permitting Sigma to serve as its distributor. See Areeda iì2134d

(describing "unilateral" market allocation agreements). Market allocation agreements between

actual or potential competitors are treated by courts as per se unlawful or inherently suspect.

Eg., Nynex Corp. v. Discon, Inc., 525 U.S. 128, 134 (1998) (horizontal market division is

unlawful per se); Palmer v. BRG of Georgia, Inc., 498 U.S. 46 (1990) (per curiam) (condemning

market allocation agreement between potential competitors).18

That Sigma acted as a distributor of McWane's Domestic Fittings after abandoning the

supplier market is not a defense. The anticompetitive effects of a market allocation are not

lessened - and thus truncated analysis stil governs - when the exiting competitor remains in the

marketplace in another capacity, such as a distributor, licensee, or supplier to its co-conspirator.

Courts understand that this ongoing relationship may simply cloak the payment to exit. For

example, in Palmer, the Supreme Court condemned a per se unlawful market allocation scheme

where the exiting competitor remained in the marketplace as a licensor to its co-conspirator. 498

18 In order to judge whether a challenged restraint is inherently suspect, the Commission

evaluates whether the conduct bears a '''close family resemblance' to conduct that courts have

previously treated with acute suspicion," or have condemned as per se unlawfuL. In re Realcomp

11,2007 WL 6936319, at *25. If the MDA is judged to be inherently suspect, then McWane may

rebut the presumption of competitive harm by advancing a legitimate effciency rationale. See

id. at *17.

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U.S. at 49-50; see also Eli Lily & Co. v. Zenith Goldline Pharms., Inc., 172 F. Supp. 2d 1060,

1074-76 (S.D. Ind. 2001) (by agreement, potential competitor converted to supplier); United

States v. Gen. Elec. Co., 1997 WL 269491, at *2 (Mar. 18, 1997) (potential competitor converted

to licensee); In re SKF Indus., 94 F.T.C. 6, 99 (1979) (competitor converted to supplier).19

3. McWane Injured Competition by Eliminating a Nascent Entrant or

Potential Competitor

Should the Commission determine that truncated analysis is inappropriate, then the MDA

should stil be judged prima facie anticompetitive when viewed in the context of Mc Wane's

power in the Domestic Fittings market. This is the "traditional" mode of rule of reason analysis.

"Market power and the anti competitive nature of the restraint are suffcient to show the potential

for anti competitive effects under a rule of reason analysis, and once this showing has been made,

(the respondent) must offer procompetitive justifications." Realcomp 11,635 F.3d at 827.

The evidence discussed in Section lILA, supra, establishes that McWane had monopoly

power in the Domestic Fittings market. The anti competitive nature of the restraint is established

in Section III.C.2, supra. The evidence shows that the MDA eliminated in full the potential

competition between Mc Wane and Sigma; case law and fundamental economics establish that

the elimination of potential entrant has an obvious tendency to harm competition. An agreement

by which a firm with market power (McWane) induces a potential entrant (Sigma) to abandon its

entry plan is primafacie anticompetitive under the full rule of reason. Schering-Plough, 136

19 This analysis is unchanged by the Supreme Court's recent decision in Actavis. There, the

Supreme Court cited with approval Palmer, which ruled that agreements between potential

competitors not to compete are per se unlawfuL. Actavis, slip op. at 7. The Court then ruled that

the rule of reason applies to reverse payment settlements because the likelihood of harm

"depends upon (the payment's) size, its scale in relation to the payor's anticipated future

litigation costs, its independence from other services for which it might represent payment, and

the lack of any other convincing justification." Id at 20.

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F.T.C. 956 at 970-71 (payment to exit is primafacie anticompetitive); see also Areeda iì701d

(monopolist's "acquisition of any firm that has the economic capabilities for entry and is a morethan-fanciful possible entrant is presumptively anticompetitive.. .").

McWane denies that Sigma was a potential competitor (substantively, the contention is

that Sigma's prospects of entr were less than "reasonably probable"). Even if correct, the MDA

is prima facie anticompetitive. The activities of a monopolist such as Mc Wane are "examined

through a special lens," and subject to a "heightened scrutiny." Kodak, 504 U.S. at 488 (Scalia,

J., Dissenting). In the context of a monopolized market, antitrust law empowers the Government

to safeguard even nascent competition. This is the teaching of Microsoft.

In Microsoft, the D.C. Circuit condemned exclusive dealing by Microsoft (a monopolist)

that foreclosed distribution of Navigator and Java. 253 F.3d at 79. There was significant

uncertinty as to whether those products would have developed into viable substitutes for

Microsoft's operating system. Applying the rule of reason under Section 2, the D.C. Circuit held

that for a monopolist, impeding nascent competition yields a cognizable anticompetitive effect.

The court reasoned that, "it would be inimical to the purpose of the Sherman Act to allow

monopolists free reign to squash nascent, albeit unproven, competitors at-wilL." Id. It was

sufficient that Navigator and Java "showed potential" as competitive threats. Id.The leading

antitrust treatise endorses this more exacting liability standard when dealing with monopolists.

Areeda iìiì912a, 2030b ("The acquisition by an already dominant firm of a new or nascent rival

can be just as anticompetitive as a merger to monopoly.").

A rule treating an agreement not to compete with a monopolist as per se lawful whenever

the would-be rival's entry falls short of "reasonably likely" would not adequately protect

consumer welfare. Such a rule would give "potential antitrust violators (Jan incentive simply to

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identify probable competitors earlier in the product development process." Goldline, 172 F.

Supp. 2d at 1075; see also Microsoft, 253 F.3d at 79; Sunbeam TV Corp. v. Nielsen Media

Research, Inc., 763 F. Supp. 1341, 1356 (S.D. Fla. 2011) ("Obviously, a monopolist should not

be rewarded for eliminating competition in its incipiency.").

In sum, McWane's monopoly power in combination with the anticompetitive nature of

the MDA establishes a prima facie case of competitive injury when Sigma is judged to be a

potential competitor and/or a nascent competitor.

4. There is no Legitimate Effciency Justification for the MDA

Because the MDA is prima facie anti competitive, rule of reason analysis requires

Mc Wane to demonstrate - plausibly and with supporting evidence - that there is a suffcient

countervailng effciency justification. See generally In re Realcomp II, 2007 WL 6936319, at

*27-28 (Oct. 13,2009). McWane must show that a market in which McWane and Sigma

distribute the same Domestic Fittings at prices determined by Mc Wane is somehow superior to a

market in which Sigma distributes its own Domestic Fittings in competition with McWane at

prices set by competitive forces. McWane advances two efficiency defenses: (1) that the MDA

secured greater sales for McWane's foundry, which had excess capacity; and (2) that the MDA

provided Distributors with a choice of suppliers for Mc Wane-branded Domestic Fittings.

As a preliminary matter, both of McWane's proffered effciency justifications are posthoc justifications deserving no weight. See North Carolina State Bd. of Dental Examiners v.

FTC, 2013 U.S. App. LEXIS 11006, at *35 n.12 (4th Cir. May 31, 2013) (rejecting purported

effciency claims where there is "lack of contemporaneous evidence" that the claimed efficiency

"motivated" adoption of the challenged restraint); Image Tech. Servs. v. Eastman Kodak Co., 125

F.3d 1195, 1219 (9th Cir. 1997) (court may disregard justification for challenged conduct when

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"evidence suggests that the proffered business justification played no part in the decision to

act"). As previously discussed, contemporaneous evidence demonstrates that McWane entered

into the MDA only because it was more profitable than competing with an independent Sigma.

ID431, 1527 (viewing MDA as a "choice of evils" between having Sigma enter independently

versus sharing margin with Sigma on sales that McWane would have otherwise made). The

proffered efficiencies are pretextual.

As Judge Chappell correctly found, and as discussed below, McWane's efficiency claims

are also non-cognizable and contrary to the greater weight òf evidence.

a) . Diverting Sales to McWane's Foundry Is Not a Cognizable

Effciency

Shifting Fittings sales from a foundry retained by Sigma to a foundry owned by Mc Wane

may be profitable for Mc Wane, but it is not a cognizable justification; it does not benefit

consumers or competition by reducing costs, increasing market-wide output, or improving

quality. See In re Polygram Holding, 136 F.T.C. 310, 345-346 (2003). As Microsoft explained,

the desire for increased sales "is not an unlawful end, but neither is it a pro competitive

justification." Microsoft, 253 F.2d. at 71-72 (characterizing objective as "a competitively neutral

goal"). Stated simply, while a monopolist may seek additional sales, it may not use

anticompetitive measures to do so. To rule otherwise would undermine antitrust policy, as

nearly every instance of anticompetitive exclusion could be "justified" by a defendant's desire to

capture additional sales at the expense of a supplier preferred by consumers absent the restraint.

See Polygram, 136 F.T.C. at 347 ("(T)he Supreme Court has recognized that a defendant cannot

justify curbing access to a more-desired product to induce consumers to purchase larger amounts

of a less-desired product.").

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b) Providing Distributors a Choice of Suppliers Is Not a Defense

Mc Wane also avers that the MDA provided Distributors with a choice of suppliers, and

that some Distributors prefer to deal with Sigma. This too is not a cognizable efficiency because

it fails to show the procompetitive benefits from the challenged restraint relative to the

marketplace that would exist but-for that restraint. See Polygram, 136 F.T.C. at 347 (defendant

must articulate specific link between challenged restraint and benefit to consumers). Here, the

but-for world is independent entry by Sigma, or alternatively, a simple buy/sell agreement (as

Sigma initially proposed) that would allow Sigma to set its own prices and secure additional

sources of supply as needed. In both scenarios, Distributors would have had the option of buying

Domestic Fittings from either McWane or Sigma. The MDA offers no advantage that offsets the

loss of competition.

Additionally, McWane's admission that having two McWane Fittings suppliers does not

increase total output indicates that this claimed effciency is trivial at best. IDF1527;

CCPF2450-2452.

Because Mc Wane has not advanced a legitimate effciency justification, the Commission

should condemn the MDA under a truncated or full rule or reason analysis.

5. Asserted Termination of the MDA Is Not a Defense

Finally, McWane asserts that it formally "terminated" the MDA in 2010 (after McWane

received notice of the FTC investigation). RA41. McWane continued, however, to supply

Domestic Fittings to Sigma (CCPF2496), and the evidence does not show whether the

succeeding arrangement was free of anti competitive restraints. In any event, the contention that

an anticompetitive agreement was short-lived is not a defense. See PolyGram, 136 F.T.C. at 354

(condemning price-fixing agreement in effect for ten weeks).

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D. McWane Conspired with Sigma to Monopolize the Domestic Fittings Market

(Count Five)

Section 1 (c) of the MDA required Sigma to enforce McWane's Exclusive Dealing Policy.

IDFI558-1565. Judge Chappell correctly found that this agreement was an unlawful conspiracy

to monopolize the Domestic Fittings market. ID437-445; IDFI509-1597. For this claim, the

Commission need not determine whether Sigma was a potential entrant into the Domestic

Fittings market. Perington Wholesale, Inc. v. Burger King Corp., 631 F.2d 1369, 1377 (10th Cir.

1979) ("traders oriented vertically to each other can be found in violation of Section 2 by

conspiring to monopolize one horizontal market intersecting the vertical arrangement").

The "essence" of a conspiracy to monopolize is "an agreement entered into with the

specific intent of achieving monopoly(.)" Northeastern TeL. Co. v. AT&T Co., 651 F.2d 76,85

(2d Cir. 1981); Wiliams v. 5300 Columbia Pike Corp., 891 F. Supp. 1169, 1175 (E.D. Va.

1995). The standard elements of a conspiracy to monopolize claim are (1) concerted action, with

(2) the specific intent to monopolize, and (3) an overt act in furtherance of the conspiracy. See

Levine v. Cent. Fla. Med. Affliates, 72 F.3d 1538, 1556 (11th Cir. 1996); Thompson v. Metro.

Multi-List, Inc., 934 F.2d 1566, 1582 (11th Cir. 1991). In addition, Complaint Counsel

established that together, McWane and Sigma possessed monopoly power in the Domestic

Fitting Market.20 McWane appeals only Judge Chappell's finding that McWane had the specific

intent to monopolize. RA37-38.

20 The Courts of Appeals are divided as to whether a plaintiff is required to prove market

definition and market power. Compare Fraser v. Major League Soccer, L.L.c., 284 F.3d 47,68

(1 st Cir. 2002) (market definition and market power required for conspiracy to monopolize

claim) with Levine, 72 F.3d at 1156 ("A claim for conspiracy to monopolize. . . does not requiré

a showing of monopoly power.").

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The standard for proving specific intent under a conspiracy to monopolize claim is the

same as it is for attempted monopolization: the intent to exclude competition or control prices.

Am. Tobacco Co. v. United States, 328 U.S. 781, 788-789 (1946); Robert's Waikiki U-Drive, Inc.

v. Budget Rent-A-Car Systems, 491 F. Supp. 1199, 1223 (D. Haw. 1980). As previously

discussed, McWane implemented its Exclusive Dealing Policy with the specific intent to exclude

Star and to prevent Domestic Fittings prices from getting "creamed" by competition with Star.

See, supra, Part III.B.

There is also direct evidence that McWane entered into the MDA with the intent to

exclude competition and to control Domestic Fittings prices. See Int'l Distrib. Ctrs., Inc. v.

Walsh Trucking Co., 812 F.2d 786, 794 (2d Cir. 1986). For example, in an internal McWane

business document, Mr. Tatman explained to his superiors that the MDA would benefit McWane

by reducing Star's abilty to grow and by further stabilzing prices:

Although not accurately quantifiable, having Sigma sell Mc Wane

branded product

~ Should reduce Star's abilty to grow share

~ Keeps additional overcapacity from being added to the

industry

~ .... (and)

~ Should help drive some additional level of price stabilty.

IDF1581 (emphasis added); see also IDF1580 (McWane noting that company's MDA

negotiations with Sigma should take into account that Sigma would not be "willng to generate

little to no incremental margin $ just to help us block Star") (emphasis added). Likewise,

contemporaneous notes from the meeting where McWane made the final decision to enter into

the MDA reveal that McWane's objective in entering the MDA was to "drive Star out of

business":

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LM ¡Mr. McCulloughJ wantfsJ to sell SIGMA to put pressure on

Star. LM hopefully to drive Star out of business. Would rather

have competition other than Star.

LM thinks that we should sell SIGMA as an insurance policy and

to continue to put pressure on Star... LM approved Rick's

recommendation page of his PowerPoint presentation on selling

SIGMA.

IDF1579 (emphasis added).21

Mc Wane incorrectly describes this evidence (and the related findings) as showing

McWane's motivation to "beat competition." RA37. As previously discussed at Part III.B.2,

supra, a desire to "block(J" and to "marginalize" Star from competing in the Domestic Fittings

market in the hope that it would bring stability in prices does not evince the laudable motive of

wanting to out-compete one's rivals. IDFI578-1581; ID440-443; Aspen Skiing, 472 U.S. at 609

n.39. Accordingly, the Commission should enter judgment against McWane.

E. The Proposed Injunctive Remedy is Not Moot

Mc Wane has failed to meet its burden of showing that injunctive relief is moot. RAB41.

Even assuming, arguendo, that McWane ceased the challenged conduct "years ago," the

"voluntary cessation of unlawful activity is not a basis for halting a law enforcement action." In

re The Coca-Cola Co., 117 F.T.C. 795, 909 (1994); see also 15 U.S.C. §45(b) (Commission can

issue complaint when it has reason to believe that a firm "has been or is using any unfair method

of competition") (emphasis added). In addition to the possibility of a respondent resuming the

ilegal practices absent an order, courts recognize that the ilegal conduct's effects "may tend to

be perpetuated in practice unless affirmative measures are taken to eradicate them."

21 McWane's specific intent can also be inferred from the anti 

competitive effects of the

Exclusive Dealing Policy, which was implemented through the MDA. Howard Hess Dental

Labs., Inc. v. Dentsply Int'l, Inc., 602F.3d 237, 257 (3d Cir. 2010) ("Specific intent in the

antitrust context may be inferred from a defendant's unlawful conduct.").

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Rubbermaid, Inc. v. FTC, 575 F.2d 1169, 1175 (6th Cir. 1978) (affirming cease and desist order

even though respondent abandoned challenged practices and did not intend to resume them).

Mc Wane, therefore; has a "formidable burden of showing that it is absolutely clear the

allegedly wrongful behavior could not reasonably be expected to recur." Friends of the Earth,

Inc. v. LaidlawEnvtl. Servs. (TOC), Inc., 528 U. S. 167, 190 (2000). McWane has not met that

burden. McWane has never publicly withdrawn its Exclusive Dealing Policy, which stil today

deters Distributors from purchasing Domestic Fittings from Star. CCPF2064-2067. Although

McWane terminated the MDA after it learned of the Commission's investigation, it continues to

sell Domestic Fittings to Sigma. CCPF2492-2496. Thus, to the extent McWane "voluntarily"

ceased its ilegal conduct, such cessation is not a basis for declining to issue a cease and desist

order. See WMR. Watch Case Corp. v. FTC, 343 F.2d 302, 304 (D.C. Cir. 1965) ("(T)here is no

bar to enforcement merely because the conduct has ceased at least temporarily under the weight

of the Commission's hand.").

McWane's reliance on United States v. Uniroyal, Inc., 300 F. Supp. 84 (S.D.N.Y. 1969),

is misplaced. RA42. Here, unlike in Uniroyal, executives at the highest level ofMcWane's

organization (Messrs. Page, McCullough, Walton, Tatman, and Jansen) conceived of, developed,

and implemented McWane's ilegal activities. IDF617-644, 1145-1192; CCPF907-929, 1823-

1849. All but Mr. Walton continue to run McWane today. IDF20-41,44-45. There is scant

evidence that Mc Wane has even stopped most of the challenged conduct, and Mc Wane has not

presented any evidence showing that market conditions now prevent it from resuming its illcit

activities.22

22 The other casés cited by McWane are inapposite. None addresses the circumstances under

which the Commission may obtain an injunction, nor suggests that there should be no relief if a

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Because Mc Wane has failed to show that it has affirmatively disavowed the challenged

conduct and that such conduct could not reasonably be expected to recur, a cease and desist order

is appropriate.

iv. CONCLUSION

For the reasons set forth above, the Commission should adopt Judge Chappell's relevant

liability findings and enter judgment against Mc Wane on Counts IV-Vii.

Dated: July 8, 2013 Respectfully submitted,

s/ Edward D. Hassi

Edward D. Hassi, Esq.

Linda M. Holleran, Esq.

J. Alexander Ansaldo, Esq.

Joseph R. Baker, Esq.

Thomas H. Brock, Esq.

Monica M. Castilo, Esq.

Mika Ikeda, Esq.

Andrew K. Mann, Esq.

Federal Trade Commission

Bureau of Competition

600 Pennsylvania Ave., N.W.

Washington, DC 20580

Telephone: (202) 326-2470

Facsimile: (202) 326-3496

Electronic Mail: ehassi@ftc.gov

"", ,~,

respohderit strategically decides to stop violating the law while under investigation. Eg., Winter

v. NR)C, 555 U.S. 7,22 (2008) (applying standard for proving irreparable injury when seeking a

preiliiinary injunction); Summers v. Earth Island Inst., 555 U.S. 488, 493 (2009) (addressing

Article III standing); Los Angeles v. Lyons, 461 U.S. 95, 101-10 (1983) (same); Wal-Mart Stores,

Inc. v. Dukes, 131 S. Ct. 2541, 2559-60 (2011 ) (discussing certification of injunctive relief

class); eBay Inc. v. MercExchange, LLC, 547 U.S. 388, 391 (2006) (holding private plaintiff

seeking a permanent injunction must satisfy traditional equitable standards).

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CERTIFICATE OF SERVICE

I hereby certify that on July 8, 2013, I fied the foregoing document electronically using

the FTC's E-Filing System, which wil send notification of such fiing to:

Donald S. Clark

Secretary

Federal Trade Commission

600 Pennsylvania Ave., NW

Washington, DC 20580

I also certify that I delivered via electronic mail and hand delivery a copy of the

foregoing document to:

The Honorable D. Michael Chappell

Administrative Law Judge

Federal Trade Commission

600 Pennsylvania Ave., NW, Rm. H-110

Washington, DC 20580

I further certify that I delivered via electronic mail a copy of the foregoing document to:

Joseph A. Ostoyich

Willam C. Lavery

Baker Botts L.L.P.

The Warner

1299 Pennsylvania Ave., NW

Washington, DC 20004

(202) 639-7700

j oseph.ostoyich@bakerbotts.com

william.lavery@bakerbotts.com

J. Alan Truitt

Thomas W. Thagard III

Maynard Cooper and Gale PC

1901 Sixth Avenue North

2400 Regions Harbert Plaza

Birmingham, AL 35203

(205) 254-1000

atruitt@maynardcooper.com

tthagard@maynardcooper.com

Counselfor Respondent McWane, Inc.

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48
PUBLIC

CERTIFICATE FOR ELECTRONIC FILING

I certify that the electronic copy sent to the Secretary of the Commission is a true and

correct copy of the paper original and that I possess a paper original of the signed document that

is available for review by the parties and the adjudicator.

July 8, 2013 By: s/ Thomas H. Brock

Attorney

49