1

 1010080

UNITED STATES OF AMERICA

BEFORE THE FEDERAL TRADE COMMISSION

COMMISSIONERS: Jon Leibowitz, Chairman

J. Thomas Rosch 

Edith Ramirez

Julie Brill

In the Matter of

SIGMA CORPORATION, 

 a corporation.

 Docket No. C-4347

 

COMPLAINT

Pursuant to the provisions of the Federal Trade Commission Act, and by virtue of the

authority vested in it by said Act, the Federal Trade Commission (“Commission”), having reason

to believe that Respondent Sigma Corporation (“Sigma”) has violated Section 5 of the Federal

Trade Commission Act, 15 U.S.C. § 45, and it appearing to the Commission that a proceeding by

it in respect thereof would be in the public interest, hereby issues this Complaint stating its

charges as follows: 

NATURE OF THE CASE

1. This action concerns Sigma’s unfair methods of competition relating to the

marketing and sale of ductile iron pipe fittings (“DIPF”). 

2. Beginning in January 2008 and continuing through January 2009, Sigma, along

with its competitors McWane, Inc. (“McWane”) and Star Pipe Products, Ltd. (“Star”), conspired

to raise and stabilize the prices at which DIPF are sold in the United States. Sigma, McWane

and Star (collectively, the “Sellers”) exchanged sales data in order to facilitate this price

coordination.

3. The passage of the American Recovery and Reinvestment Act (“ARRA”) in

February 2009 significantly altered the competitive dynamics of the DIPF industry, and upset the

terms of coordination among the Sellers. In the ARRA, the United States Congress allocated

more than 6 billion dollars to water infrastructure projects, conditioned on the use of
2

domestically produced materials, including DIPF, in those projects (the “Buy American”

requirement). 

4. At the time the ARRA was passed, McWane was the sole supplier of a full line of

domestically produced DIPF in the most commonly used size ranges. Federal stimulus of the

domestic DIPF market potentially left McWane in a position to reap a monopoly profit.

5. In response to the passage of the ARRA and its Buy American provision, Sigma,

Star and others attempted to enter the domestic DIPF market in competition with McWane. 

6. Instead of competing with one another in the domestic DIPF market, Sigma and

McWane conspired to monopolize that market by (i) entering into a distribution agreement that

eliminated Sigma as an actual potential entrant into the domestic DIPF market, and (ii) excluding

actual and potential competitors, including Star, through the adoption and enforcement of

exclusive dealing policies. 

7. Sigma’s conduct has restrained competition and led to higher prices for both

imported and domestically produced DIPF. 

THE RESPONDENT

8. Respondent Sigma is a corporation organized, existing and doing business under

and by virtue of the laws of the State of New Jersey, with its principal place of business located

at 700 Goldman Drive, Cream Ridge, New Jersey 08154. Sigma imports, markets and sells

products for the waterworks industry, including DIPF. 

9. At all times relevant herein, Sigma has been, and is now, a corporation as

“corporation” is defined in Section 4 of the Federal Trade Commission Act, 15 U.S.C. § 44. 

10. Sigma’s acts and practices, including the acts and practices alleged herein, are in

or affect commerce in the United States, as “commerce” is defined in Section 4 of the Federal

Trade Commission Act, 15 U.S.C. § 44.

THE DIPF INDUSTRY 

11. DIPF are a component of pipeline systems transporting drinking and waste water

under pressurized conditions in municipal distribution systems and treatment plants. DIPF are

used to join pipes, valves and hydrants in straight lines, and to change, divide or direct the flow

of water. The end users of DIPF are typically municipal and regional water authorities. 

12. Independent wholesale distributors, known as “waterworks distributors,” are the

primary channel of distribution of DIPF to end users. Waterworks distributors specialize in

distributing products for water infrastructure projects, and generally handle the full spectrum of

waterworks products, including pipes, DIPF, valves and hydrants. Waterworks distributors

employ sales personnel dedicated to servicing the needs of end users, and are generally able to
3

satisfy the needs of end users for rapid service by stocking inventory in relatively close

proximity to project sites.

13. Direct sales of DIPF to end users, or to the utility contractors that often serve as

the agent of the end user in purchasing and installing DIPF, are uncommon. End users and DIPF

suppliers alike prefer to work through waterworks distributors with locations near project sites. 

As a result, DIPF suppliers need to distribute DIPF through local waterworks distributors in each

region of the country in order to compete effectively in that region. 

14. Both imported and domestically produced DIPF are commercially available. All

of the Sellers sell imported DIPF. Before Star’s entry into domestic production in 2009,

McWane was the sole domestic producer of a full line of small and medium-sized DIPF. 

15. The end user of DIPF specifies whether on a particular project it will accept both

imported and domestically produced DIPF, or only domestically produced DIPF. This

specification is often mandated by municipal code, or by state or federal law. 

16. Domestically produced DIPF sold for use in projects specified as domestic only

are sold at higher prices than imported or domestically produced DIPF sold for use in projects

not specified as domestic only. 

THE RELEVANT MARKETS

17. The relevant product market in which to evaluate Sigma’s conduct is the

marketing and sale of DIPF, and narrower relevant markets as contained therein (collectively,

the “relevant DIPF markets”), including:

a. DIPF for projects not specified as domestic only; 

b. DIPF for projects specified as domestic only; and 

c. DIPF of certain size ranges (e.g., 24" in diameter and smaller).

18. In particular, the marketing and sale of domestically produced small and mediumsized (3-24" in diameter) DIPF for use in projects specified as domestic only constitutes a

separate relevant product market (the “relevant domestic DIPF market”).

19. There are no widely used substitutes for DIPF, and no other product significantly

constrains the prices of DIPF. 

20. Before and after the passage of the ARRA, some end users purchasing DIPF for

use in projects specified as domestic only were unable to substitute imported DIPF, or any other

product, for domestically produced DIPF. The passage of the ARRA and its Buy American

requirement temporarily expanded the relevant domestic DIPF market. 
4

21. The relevant geographic market is the United States. To compete effectively

within the United States, DIPF suppliers need distribution assets and relationships within the

United States. DIPF suppliers located outside the United States that lack such assets and

relationships are unable to constrain the prices of DIPF suppliers that have such assets and

relationships. 

22. The relevant DIPF markets have several features that facilitate price coordination

among DIPF suppliers. The relevant DIPF markets are highly concentrated. In 2008, the Sellers

collectively made more than 90 percent of sales within the relevant DIPF markets. Other

features of the relevant DIPF markets that facilitate price coordination include product

homogeneity, barriers to timely entry of new DIPF suppliers, inelastic demand at competitive

prices, and uniform published prices. 

THE SELLERS RESTRAINED

 PRICE COMPETITION IN THE RELEVANT DIPF MARKETS

23. Beginning in January 2008 and continuing through January 2009, the Sellers

conspired to raise and stabilize the prices at which DIPF were sold in the United States. 

24. Due to rising input costs, all of the Sellers desired price increases in 2008. 

However, McWane was concerned that Sigma and Star would not adhere to announced price

increases, which would result in lost sales for McWane. 

25. In January 2008, McWane formulated a plan to trade its support for higher prices

in exchange for specific changes to the business methods of Sigma and Star that would reduce

the risk that local sales personnel for these competitors would sell DIPF at prices lower than

published levels.

26. McWane communicated the terms of its plan to Sigma and Star. Sigma and Star

manifested their understanding and acceptance of McWane’s offer by publicly taking steps to

limit their discounting from published price levels in order to induce McWane to support higher

price levels. 

27. McWane then led a price increase, and Sigma and Star followed.

28. In June 2008, McWane formulated a plan to trade its support for higher prices in

exchange for information from Sigma and Star documenting the volume of their monthly sales

of DIPF. This exchange of information was to be achieved under the auspices of an entity styled

as the Ductile Iron Fittings Research Association (“DIFRA”). 

29. McWane communicated the terms of its plan to Sigma and Star through a public

letter sent by McWane to waterworks distributors, the common customers of the Sellers. A

section of that letter was meaningless to distributors, but was intended to inform Sigma and Star

of the terms of McWane’s offer.
5

30. Sigma and Star manifested their understanding and acceptance of McWane’s

offer by initiating their participation in the DIFRA information exchange in order to induce

McWane to support higher price levels. 

31. McWane then led a price increase, and Sigma and Star followed.

DIFRA FACILITATED PRICE

COORDINATION AMONG THE SELLERS 

32. The DIFRA information exchange operated as follows. The Sellers submitted a

report of their previous month’s sales to an accounting firm. Shipments were reported in tons

shipped, subdivided by diameter size range (e.g., 2-12") and by joint type. Data submissions

were aggregated and distributed to the Sellers. Data submitted to the accounting firm was

typically no older than 45 days, and the summary reports returned to the Sellers contained data

typically no more than 2 months old.

33. During its operation between June 2008 and January 2009, the DIFRA

information exchange enabled each of the Sellers to determine and to monitor its own market

share and, indirectly, the output levels of its rivals. In this way, the DIFRA information

exchange facilitated price coordination among the Sellers on the pricing of DIPF. 

SIGMA INVITED McWANE AND STAR TO COLLUDE WITH SIGMA

34. Sigma and Star stopped participating in the DIFRA information exchange in

January 2009. 

35. In April 2009, McWane announced a new price list for DIPF. McWane’s new

published prices for medium and large diameter DIPF, the size ranges dominated by Sigma and

Star, were lower than prevailing prices.

36. Sigma perceived McWane’s new price list as a punishment of Sigma and Star for

failing to adhere to published price levels and for withdrawing from the DIFRA information

exchange. 

37. Sigma initially resisted McWane’s new price list, and proposed, in public and

private communications with McWane and Star, an alternative arrangement to alleviate

McWane’s concerns about secret discounting. One term of Sigma’s proposal was an offer to

resume participation in the DIFRA information exchange. Another term of Sigma’s proposal

was that McWane would rescind its announced price list and continue the use of the old price list

in exchange for the commitment of Sigma and Star to adhere to published price levels for DIPF. 

38. McWane and Star rejected Sigma’s invitation to collude. 
6

McWANE AND SIGMA CONSPIRED TO MONOPOLIZE 

THE RELEVANT DOMESTIC DIPF MARKET

39. At the time of the enactment of the ARRA in February 2009 and thereafter,

McWane possessed monopoly power in the relevant domestic DIPF market. 

40. At the time of the enactment of the ARRA, McWane was the only manufacturer

of a full line of DIPF in the relevant domestic DIPF market and controlled nearly 100 percent of

the relevant domestic DIPF market. Despite Star’s entry into the relevant domestic DIPF market

in late 2009, McWane continues to make more than 90 percent of sales in the relevant domestic

DIPF market. 

41. McWane’s monopoly power in the relevant domestic DIPF market is protected by

substantial barriers to effective entry and expansion, including the unfair methods of competition

of McWane and Sigma, as alleged in Paragraphs 44 through 60 below. 

42. For suppliers of the relevant DIPF that have existing relationships and goodwill

with waterworks distributors and established reputations for quality and service in the provision

of the relevant DIPF, McWane’s unfair and exclusionary methods of competition are the primary

barriers to effective entry and expansion in the relevant domestic DIPF market. 

43. Federal stimulus of the relevant domestic DIPF market gave Sigma, Star and

other suppliers of imported DIPF an incentive to enter the relevant domestic DIPF market. 

 

McWane Eliminated Sigma as an Actual Potential Entrant

44. After the enactment of the ARRA, Sigma took steps to evaluate entry into

domestic production of DIPF, including but not limited to (i) formulating a complete or nearly

complete operational plan, (ii) arranging for an infusion of equity capital to fund domestic

production, (iii) obtaining the approval of its Board of Directors for its entry plans, and (iv)

casting prototype product. 

45. McWane perceived that Sigma was preparing to enter the relevant domestic DIPF

market. McWane sought to eliminate the risk of competition from Sigma by inducing Sigma to

become a distributor of McWane’s domestic DIPF rather than a competitor in the relevant

domestic DIPF market.

46. McWane and Sigma executed a Master Distribution Agreement dated September

17, 2009 (“MDA”). The principal terms of the MDA were as follows:

a. McWane would sell domestic DIPF to Sigma at a 20 percent discount off

of McWane’s published prices;
7

b. McWane would be Sigma’s exclusive source for the relevant domestic

DIPF;

c. Sigma would resell McWane’s domestic DIPF at or very near McWane’s

published prices for domestic DIPF; and

d. Sigma would resell McWane’s domestic DIPF to waterworks distributors

only on the condition that the distributor agreed to purchase domestic DIPF exclusively

from McWane or Sigma. 

47. An unwritten term of the MDA was that McWane would also sell its domestic

DIPF at or very near its published prices. 

48. In the absence of a sufficiently profitable arrangement with McWane, Sigma

would likely have entered the relevant domestic DIPF market in competition with McWane.

49. Under the MDA, McWane controlled the price at which Sigma could sell

domestic DIPF and the customers to whom Sigma could sell domestic DIPF. Sigma’s

participation in the relevant domestic DIPF market under the MDA was not equivalent to, and

for consumers not a substitute for, Sigma’s competitive entry into the relevant domestic DIPF

market. 

50. Sigma’s independent, competitive entry into the relevant domestic DIPF market

would likely have benefitted consumers by constraining McWane’s prices for the relevant

domestic DIPF. 

51. Through the MDA, McWane transferred a share of its sales and monopoly profits

in the domestic DIPF market to Sigma in exchange for Sigma’s commitment to abandon its plans

to enter the relevant domestic DIPF market as an independent competitor. 

52. Both McWane and Sigma entered into the MDA with the specific intent to

maintain and share in McWane’s monopoly profits in the relevant domestic DIPF market by

eliminating competition among themselves and excluding their rivals. 

McWane Excluded Star Through Exclusive Dealing 

53. Star announced its entry into the relevant domestic DIPF market in June 2009. 

McWane knew that, initially, Star would have a shorter product line and a smaller inventory than

McWane. Star would therefore have difficulty convincing a waterworks distributor to purchase

all of its domestic DIPF from Star. 

54. McWane responded to Star’s entry into the relevant domestic DIPF market by

adopting restrictive and exclusive distribution policies (collectively, “McWane’s exclusive

dealing policies”). 
8

a. McWane threatened waterworks distributors with delayed or diminished

access to McWane’s domestic DIPF, and the loss of accrued rebates on the purchase of

McWane’s domestic DIPF, if those distributors purchased domestic DIPF from Star. 

b. As part of its MDA with McWane, Sigma agreed to implement a similar

distribution policy, as alleged in Paragraph 46, above. 

c. McWane threatened some waterworks distributors with the loss of rebates

in other product categories, such as ductile iron pipe, waterworks valves, and hydrants, if

those distributors purchased domestic DIPF from Star. 

d. Beginning in 2011, McWane changed its rebate structure for domestic

DIPF to require waterworks distributors to make certain minimum, and high, shares of

their total domestic DIPF purchases from McWane in order to qualify for these rebates. 

55. The purpose and effect of McWane’s exclusive dealing policies has been and is to

compel the majority of waterworks distributors to deal with McWane and Sigma on an exclusive

or nearly exclusive basis for their domestic DIPF business.

a. Due to Star’s perceived or actual status as an untested supplier of domestic

DIPF with a shorter product line and smaller inventory than McWane, many distributors

interested in purchasing domestic DIPF from Star were unwilling to switch all of their

domestic DIPF business to Star. 

b. Instead, many distributors wished to purchase domestic DIPF from both

McWane/Sigma and Star, and thereby to garner the benefits of price and service

competition. 

c. McWane’s exclusive dealing policies increased the risk of purchasing

domestic DIPF from Star.

d. Distributors otherwise interested in purchasing domestic DIPF from Star

were and are unwilling to do so under the terms of McWane’s exclusive dealing policies,

and have remained exclusive or nearly exclusive with McWane and Sigma, contrary to

their preference. 

56. McWane’s exclusive dealing policies have foreclosed Star from a substantial

volume of sales opportunities with waterworks distributors. 

57. By foreclosing Star from a substantial volume of sales opportunities with

waterworks distributors, McWane’s exclusive dealing policies tend to minimize and delay Star’s

ability to benefit consumers by constraining the prices of domestically produced DIPF charged

by McWane and Sigma. 
9

58. McWane’s exclusive dealing policies have also raised barriers to entry into the

relevant domestic DIPF market by other potential entrants. This conduct has contributed to

McWane’s monopolization of the relevant domestic DIPF market. 

COMPETITIVE EFFECTS

59. The acts and practices of Sigma, as alleged herein, have the purpose, capacity,

tendency, and effect of (i) maintaining and stabilizing prices of DIPF in the relevant DIPF

markets, (ii) eliminating potential competition from Sigma in the relevant domestic DIPF

market, (iii) impairing the competitive effectiveness of Star in the relevant domestic DIPF

market, and (iv) raising barriers to entry for potential rivals in the relevant domestic DIPF

market. The conduct of Sigma is reasonably capable of making a significant contribution to the

enhancement or maintenance of McWane’s monopoly power in the relevant domestic DIPF

market. 

60. There are no legitimate procompetitive efficiencies that justify the conduct of

Sigma as alleged herein, or that outweigh its anticompetitive effects.

FIRST VIOLATION ALLEGED

RESTRAINT OF TRADE

61. As alleged herein, Sigma conspired with its competitors to restrain price

competition. These concerted actions unreasonably restrain trade and constitute unfair methods

of competition in or affecting commerce in violation of Section 5 of the Federal Trade

Commission Act, as amended, 15 U.S.C. § 45. Such acts and practices, or the effects thereof,

will continue or recur in the absence of appropriate relief.

SECOND VIOLATION ALLEGED

RESTRAINT OF TRADE

62. As alleged herein, Sigma conspired with its competitors to exchange

competitively sensitive sales information. These concerted actions unreasonably restrain trade

and constitute unfair methods of competition in or affecting commerce in violation of Section 5

of the Federal Trade Commission Act, as amended, 15 U.S.C. § 45. Such acts and practices, or

the effects thereof, will continue or recur in the absence of appropriate relief.

THIRD VIOLATION ALLEGED

INVITATION TO COLLUDE

63. As alleged herein, Sigma invited competitors to collude with Sigma. These

actions constitute unfair methods of competition in or affecting commerce in violation of Section

5 of the Federal Trade Commission Act, as amended, 15 U.S.C. § 45. Such acts and practices, or

the effects thereof, will continue or recur in the absence of appropriate relief.
10

FOURTH VIOLATION ALLEGED

RESTRAINT OF TRADE

64. As alleged herein, McWane and Sigma entered into the MDA. The agreement

unreasonably restrains trade and constitutes an unfair method of competition in or affecting

commerce in violation of Section 5 of the Federal Trade Commission Act, as amended, 15

U.S.C. § 45. Such acts and practices, or the effects thereof, will continue or recur in the absence

of appropriate relief.

FIFTH VIOLATION ALLEGED

CONSPIRACY TO MONOPOLIZE

65. As alleged herein, McWane and Sigma entered into the MDA with the specific

intent to monopolize the relevant domestic DIPF market, and took overt acts to exclude their

rivals in furtherance of their conspiracy, constituting an unfair method of competition in or

affecting commerce in violation of Section 5 of the Federal Trade Commission Act, as amended,

15 U.S.C. § 45. Such acts and practices, or the effects thereof, will continue or recur in the

absence of appropriate relief.

WHEREFORE, THE PREMISES CONSIDERED, the Federal Trade Commission on

this twenty-seventh day of February, 2012 , issues its complaint against Sigma.

By the Commission.

Donald S. Clark

Secretary

SEAL: