UNITED STATES OF AMERICA 

BEFORE THE FEDERA TRAE COMMISSI 

COMMISSIONERS: Edith Ramirez, Chairwoman 

Julie Bril 

Maureen Ohlhausen 

Joshua Wright 

In the Matter of ) 

) PUBLIC 

MCWANE, INC., 

a corporation, and 

STAR PIPE PRODUCTS, LTD., 

a limited partnership. 

) 

) 

) 

) 

) DOCKET NO. 9351 

) 

) 

RESPONDENT McWANE, INC.'S APPEAL BRIEF 

J. Alan Truitt Joseph A. Ostoyich 

Thomas W. Thagard III Erik T. Koons 

Maynard Cooper and Gale PC Wiliam C. Lavery 

1901 Sixth Avenue North Heather Souder Choi 

2400 Regions Harbert Plaza Baker Botts L.L.P. 

Birmingham, AL 35203 TheWamer 

1299 Pennsylvania Ave., N.W. 

Washington, D.C. 20004-2420 

Attorneys for Respondent Mc Wane, Inc. 

Dated: June 4, 2013 
PUBLIC
 

RECORD REFERENCES 

References to the record are made using the following citation forms and abbreviations: 

JX# - Joint Exhibit 

CX# - Complaint Counsel Exhibit 

RX# - Respondent Exhibit 

Name of 
 Witness, Tr. xx- Trial Testimony 

JXCXIR# (Name of 
 Witness, Dep. at xx) - Deposition Testimony 

JXCXIR # (Name of 
 Witness, IHT at xx) - Investigational Hearing Testimony 

JSLF ir x - Joint Stipulations of Law and Fact 

Complaint ir x - Complaint Counsel's Complaint fied January 4, 2012 

Answer ir x - RespondentMcWane, Inc's Answer to Complaint 

RR A No. x - Respondent's Response to Complaint Counsel's Requests for Admission. 

CRF A No. x - Complaint Counsel's Response to Respondent's Requests for Admission 

Initial Dec. # - Administrative Law Judge's May 1,2013 Initial Decision 

F. # - Administrative Law Judge's Findings of Fact 

RB # - Respondent's Post Trial Brief 

RFF ir - Respondent's Post Trial Proposed Findings of Fact 

CCB # - Complaint Counsel's Post Trial Brief 

CCFF ir - Complaint Counsel's Post Trial Proposed Findings of Fact 

CCRFF ir - Complaint Counsel's Reply To Respondent's Proposed Findings of 
 Fact 

f bold L - In Camera Material 

ii 
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TABLE OF CONTENTS
 

STATEMENT OF THE CASE .......................................................................................................1
 

STATEMENT OF FACTS..............................................................................................................2
 

1. THERE is NO DOMESTIC FITTINGS MART...........................................................2
 

A. Imported And Domestic Fittings Are Fungible Commodities And End-


Users Have A Choice In Writing Their Specifications ...........................................2
 

B. Cheap Imports Have Won The Competition For Specifications And
 

Decimated The Producers Of 
 Domestic Fittings.....................................................5
 

C. The ALJ Did Not Rely On Any Economic Evidence Demonstrating A
 

Domestic-Only Fittings Market...............................................................................6
 

II. MCWANE DID NOT EXCLUDE STAR...........................................................................7
 

A. Star "Clearly" Entered Virtal Domestic Production Quickly And
 

Successfully ............................................................................................................. 7
 

B. The ALJ Found That Star Was An Ineffcient Competitor ...................................10
 

C. The ALJ Found That McWane's Rebate Policy Was Short-Term And
 

Allowed Union Foundry To Continue Operating More Efficiently Than
 

Star.........................................................................................................................13
 

III. THE MDA DID NOT EXCLUDE SIGMA ......................................................................15
 

A. The ALJ Found That Sigma Was Not A Viable Potential Domestic
 

Fittings Competitor ................................................................................................15
 

1. Sigma's Dire Financial Straits Crippled Its Ability To Virtually
 

Manufacture Domestic Fittings .............................................................................15
 

2. Sigma Was Unable To Manufacture Domestic Fittings Within The Short
 

AR Window .....................................................................................................16
 

B. The MDA Allowed McWane To Keep Its Effcient Union Foundry In
 

Business ...... ....... .... .......... ....... ....... .......... ......... ..... .... ............... ........... ...... ............ 17
 

SUMMARY OF ARGUMENT .....................................................................................................17
 

1. Counts 6 and 7 Fail Because McWane Did Not Monopolize Domestic
 

Fittings Or Exclude Star ........................................................................................18
 

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11. Counts 4 and 5 Fail Because The MDA Did Not Exclude Sigma Or
 

Restrain Trade........................................................................................................21
 

QUESTIONS PRESENTED .........................................................................................................22
 

COMMISSION STANDARD OF REVIEW ................................................................................22
 

ARGUMNT ................................................................................................................................23
 

1. THERE IS NO DOMESTIC FITTINGS MART.........................................................23
 

11. MCWANE'S REBATE LETTER 
 DID NOT VIOLATE SECTION 5............................25
 

A. Star's Successful Entr Precludes A Finding Of 
 Monopolization (Or
 

Attempt) As A Matter of Law ...............................................................................25
 

B. Star Was Less Effcient Than McWane And Consumers Were Not Injured
 

By Its Non-Exclusion ............................................................................................29
 

C. There Was No Specific Intent To Monopolize And No Dangerous
 

Probability Of Success ...........................................................................................32
 

III. THE MDA DID NOT UNASONABL Y RESTRAIN TRADE AND WAS
 

NOT A "CONSPIRACY TO MONOPOLIZE" DOMESTIC FITTINGS........................33
 

A. The ALl's Finding That Sigma Was Not An Actual Or Potential Domestic
 

Fittings Competitor Is Dispositive.........................................................................33
 

B. The MDA Was A Buy-Sell Arangement Between Mc Wane And One Of
 

Over 600 Distributors And Not An Unreasonable Vertical Restraint Of
 

Trade Nor A Conspiracy To Monopolize..............................................................35
 

C. McWane Did Not Have The Specific Intent To Monopolize................................37
 

IV. MCWANE'S REBATE POLICY AND THE MDA WERE BOTH SHORTTERM IN DURATION AND PRESUMPTIVELY LA WFUL........................................38
 

V. MCWAN'SREBATEPOLICY AND THEMDA HAD LEGITIMTE PROCOMPETITIVE EFFECTS ...............................................................................................39
 

V1. THE PROPOSED INJUCTIVE REMEDY IS MOOT ..................................................41
 

CONCLUSION .............................................................................................................................43
 

iv 
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TABLE OF AUTHORITIES 

Page(s) 

CASES 

A.A. Poultr Farms, Inc. v. Rose Acre Farms, Inc., 

881 F.2d 1396 (7th Cir. 1989)...........................................................................................30,32 

AD/SAT v. Associated Press, 

181 F.3d 216 (2d Cir. 1999) ....................................................................................................26
 

Alled Orthopedic Appliances Inc. v. Tyco Health Care Group LP, 

592 F.3d 991 (9th Cir. 2010).......................................................................................28,30,31 

B & H Med. L.L.c. v. ABP Admin., Inc., 

526 F .3d 257 (6th Cir. 2008) ...................................................................................................36 

Barry Wright Corp. v. ITT Grinnell Corp., 

724 F.2d 227 (1st Cir. 1983)....................................................................................................30
 

Bell At!. Corp. v. Twombly, 

550 U.S. 544 (2007) ................................................................................................................37 

Brooke Group Ltd. v. Brown & Wiliamson Tobacco Corp., 

509 U.S. 209 (1993) ..............................................................................................20,27,28,30
 

Brown Shoe Co. v. United States, 

370 U.S. 294 (1962) ................................................................................................................32 

Cable Holdings of 
 Ga., Inc. v. Home Video, Inc., 

825 F.2d 1559 (11th Cir. 1987).........................................................................................22,34
 

Cascade Health Solutions v. Peacehealth, 

515 F .3d 883 (9th Cir. 2008) ................................................................................................... 30 

CDC Techs., Inc. v. IDEX Labs., Inc., 

186 F.3d 74 (2d Cir. 1999) ................................................................................................38,41 

City of Los Angeles v. Lyons, 

461 U.S. 95 (1983) ..................................................................................................................42 

Concord Boat v. Brunswick Corp., 

207 F.3d 1039 (8th Cir. 2000)...........................................................................................31, 32 

Conergy AG v. MEMC Elec. Materials, Inc., 

651 F. Supp. 2d 51 (S.D.N.Y. 2009).......................................................................................34
 

v 
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Copperweld Corp. v. Independence Tube Corp.,
 

467 U.S. 752 (1984) ................................................................................................................30
 

E. Food Servs., Inc. v. Pontifcal Catholic Univ. Servs. Ass 'n, Inc., 

357 F.3d 1 (1st Cir. 2004)........................................................................................................20
 

eBay Inc. v. MercExchange, L.L.c.,
 

547 U.S. 388 (2006) ................................................................................................................42
 

Engine Specialties, Inc. v. Bombardier, Ltd.,
 

605 F.2d 1 (1st Cir. 1979)........................................................................................................34
 

Gas Utils. Co. of Alabama, Inc. v. S. Natural Gas Co., 

996 F.2d 282 (11th Cir. 1993) ...........................................................................................21,34 

In re Baby Food Antitrust Litig.,
 

166 F.3d 112 (3d Cir. 1999) ....................................................................................................38
 

In re Chi. Bridge & Iron Co.,
 

No. 9300,2005 FTC LEXIS 215 (Jan. 6, 2005)......................................................................23
 

In re TransUnion Corp.,
 

No. 9255, 2000 FTC LEXIS 23 (Feb. 10, 2000).....................................................................22
 

Indeck Energy Servs., Inc., v. Consumers Energy Co.,
 

250 F:3d 972 (6th Cir. 2000) ...................................................................................................38
 

Jefferson Parish Hosp. Dist. NO.2 v. Hyde, 

466 U.S. 2 (1984) ....................................................................................................................20
 

Ky. Speedway, LLC v. Nat'!. Ass'n of Stock Car Auto Racing, Inc., 

588 F.3d 908 (6th Cir. 2009).......................................................................................23,24,25
 

Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 

551 U.S. 877 (2007) ................................................................................................................36
 

Levine v. Cent. Fla. Med. Afliates,
 

72 F.3d 1538 (11th Cir. 1996).................................................................................................33
 

Metro Mobile CTS, Inc. v. New Vector Commc 'ns., Inc.,
 

892 F .2d 62 (9th Cir. 1989) ..................................................................................................... 26
 

Monsanto Co. v. Spray-Rite Serv. Corp., 

465 U.S. 752 (1984) ................................................................................................................37
 

Oahu Gas Serv., Inc. v. Pacifc Res., Inc.,
 

838 F.2d 360 (9th Cir. 1988)...................................................................................................26
 

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Omega Envtl., Inc. v. Gilbarco, Inc., 

127 F.3d 1157 (9th Cir. 1997) ...........................................................................................20,28
 

Pac. Bell Te!. Co. v. Linkline Commc'ns, Inc., 

555 U.S. 438 (2009) ................................................................................................................28 

Paddock Publ'ns, Inc. v. Chicago Tribune Co., 

103 F.3d 42 (7th Cir. 1996).....................................................................................................38 

Queen City Pizza, Inc. v. Domino's Pizza, Inc., 

124 F.3d 430 (3d Cir. 1997) ..............................................................................................23,25
 

Race Tires Am., Inc. v. Hoosier Racing Tire Corp., 

614 F.3d 57 (3d Cir. 2010) ......................................................................................................38 

Realcomp II, Ltd. v. FTC, 

635 F.3d 815 (6th Cir. 2011)...................................................................................................33 

Rebel Oil Co. v. At!. Richfeld Co., 

51 F.3d 1421 (9th Cir. 1995) ...................................................................................................23
 

Roland Mach. Co. v. Dresser Indus., Inc., 

749 F.2d 380 (7th Cir. 1984) .......................................................................................38, 39, 40 

Santa Clara Valley Distrib. Co. v. Pabst Brewing Co., 

556 F.2d 942 (9th Cir. 1977)....................................................................................,..............37
 

Satellte Television & Associated Res., Inc. v. Cont'l Cablevision, 

714 F.3d 351 (4th Cir. 1983)...................................................................................................36
 

Seagood Trading Corp. v. Jerrico, Inc., 

924 F.2d 1555 (11th Cir. 1991) ...............................................................................................31 

Spectrum Sports, Inc. v. McQuilan, 

506 U.S. 447 (1993) ................................................................................................................26 

Standard Oil Co. v. United States, 

337 U.S. 293 (1949) ..........................................................................................................35,41
 

Sterling Merch., Inc. v. Nestle, SA., 

656 F.3d 112 (1st Cir. 2011)..............................................................................................35,36 

Stop & Shop Supermarket Co. v. Blue Cross & Blue Shield, 

373 F.3d 57 (1st Cir. 2004)......................................................................................................41
 

Summers v. Earth Island Inst., 

555 U.S. 488 (2009) ................................................................................................................42 

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, Sunbeam Television Corp., v. Nielsen Media Research, Inc., 

763 F. Supp. 2d 1341 (S.D.Fla. 2011)...............................................................................22,34 

Tampa Elec. Co. v. Nashvile Coal Co., 

365 U.S. 320 (1961) ................................................................................................................20 

Thompson Everett, Inc. v. Nat'l Cable Adver., L.P., 

57 F.3d 1317 (4th Cir. 1995) ...................................................................................................35 

Thompson v. Metro. Multi-List, Inc., 

934 F.2d 1566 (11th Cir. 1991) ...............................................................................................33 

Ticketmaster Corp., v. Tickets.com, Inc. 

127 F. App'x. 346 (9th Cir. 2005)...........................................................................................38
 

Tops Mkts., Inc. v. Quality Mks., Inc., 

142 F.3d 90 (2d Cir. 1998) ..........................................................................................20,26,28
 

us. Anchor Mfg., Inc. v. Rule Inds., Inc., 

7 F.3d 986 (11th Cir. 1993)...............................................................................................24,32
 

us. v. Parke, Davis & Co.,
 

362 U.S. 29 (1960) ..................................................................................................................37
 

United States v. Colgate & Co., 

250 U.S. 300 (1919) ................................................................................................................28 

United States v. Dentsply Int'l, Inc., 

399 F.3d 181 (3d Cir. 2005) ....................................................................................................28 

United States v. E.1 du Pont de Nemours & Co., 

351 U.S. 377 (1956) ................................................................................................................23 

United States v. Grinnell Corp., 

384 U.S. 563 (1966) ................................................................................................................26 

United States v. Uniroyal, Inc., 

300 F. Supp. 84 (S.D.N.Y. 1969) ............................................................................................42 

Wal-Mart Stores, Inc. v. Dukes, 

131 S. Ct. 2541 (2011) ............................................................................................................42 

Winter v. Natural Res. De! Council, Inc., 

555 U.S. 7 (2008) ....................................................................................................................42 

Yamaha Motor Co. v. FTC, 

657 F.2d 971 (8th Cir. 1981)...................................................................................................34 

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STATUTES 

FTC Act Section 5 .........................................................................................................1, 18,25,33
 

16 C.F.R. § 3.43(a) .........................................................................................................................25
 

OTHER AUTHORITIES
 

Rule 3.51(c)(I) ...............................................................................................................................23
 

Rule 3.54(a) ...................................................................................................................................22
 

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STATEMENT OF THE CASE
 

The Federal Trade Commission ("FTC" or "Commission") issued the Administrative 

Complaint ("Complaint") in this matter against Respondent Mc Wane, Inc. ("Mc Wane"), Star 

Pipe Products, Ltd. ("Star") and Sigma Corporation ("Sigma") on January 4,2012, and approved 

consent decrees with Sigma and Star on February 27, 2012, and May 8,2012, respectively. The 

Complaint alleged that Mc Wane, Sigma, and Star violated FTC Act Section 5 by entering into an 

agreement in 2008 to fix, raise, and stabilize the prices for ductile iron pipe fittings ("Fittings"), 

engaged in price signaling, and "faciltated coordination" by submitting tons-shipped data to an 

accounting firm for an industry trade association. Complaint Counts 1-3. The Complaint also 

alleged that McWane violated Section 5 by monopolizing a small portion of 
 the overall Fittings
 

market-the purported market for "Domestic Fittings." It alleged Mc Wane did so by issuing a 

rebate policy in September 2009 that excluded Star from Domestic Fittings and by entering into 

a Master Distribution Agreement ("MDA") with Sigma that excluded Sigma from Domestic Fittings. Complaint Counts 4-7.
 

McWane fied its Answer on February 2, 2012, denying that it conspired to raise and stabilze Fittings prices (Answer irir 29, 32), denying that there was a separate Domestic Fittings 

market (Answer irir 21, 39), and denying that it eliminated Sigma as a potential entrant and excluded Star from the purported Domestic Fittings market. Answer irir 47-63. The administrative 

hearing in this matter began on September 4, 2012 and concluded on November 2, 2012. The 

Administrative Law Judge ("ALJ") issued his Initial Decision on May 1, 2013. The ALJ dismissed Counts 1-3, finding that McWane priced independently at all times. Initial Dec. at 292 

(finding "substantial evidence" that McWane priced independently and routinely priced below 

rival suppliers "in order to beat prices being offered being offered by its competitors, which is a 

pro-competitive purpose."). 

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The ALJ found that the government's horizontal case amounted to nothing more than 

"weak" "unsupported speculation" and that its "daisy chain of assumptions fails to support or 

justify an evidentiary inference of any unlawful agreement involving McWane." Initial Dec. at 

286,300,306. On Counts 4-7, however, the ALJ recommended a ruling in Complaint Counsel's 

favor. Respondent fies this Appeal Brief because the ALl's own fact-findings, and longstanding antitrust precedent, should lead to judgment in McWane's favor as a matter of law on 

Counts 4-7. Indeed, former Commissioner Rosch already dissented from this enforcement action 

twice because mainstream antitrust law "bless( ed) the conduct the complaints charge as exclusive dealing" and because "under any objective standard . . . the undisputed facts demonstrate 

that Star's entry was no de minimis or triviaL." Statement of Commissioner J. Thomas Rosch, 

Concurring in Part and Dissenting in Part, Administrative Complaint, FTC File No. 101 0080, 

January 4,2012 ("Rosch Statement"); Statement of Commissioner J. Thomas Rosch, Dissenting 

in Part to the Opinion ofthe Commission on Complaint Counsel's and Respondent's Motions for 

"I 

Summary Decision ("Rosch Dissent"), Aug. 9,2012 at 5. "Thus, the fact that Star attined a 10 

percent share of the domestic-only DIPF market-from zero share-in less than three years undermines Complaint Counsel's basic theory" and "would not lead a trier of fact to find for Complaint CounseL." Id. 

STATEMENT OF FACTS 

I. THERE IS NO DOMESTIC FITTINGS MAT
 

A. Imported And Domestic Fittings Are Fungible Commodities And 

End-Users Have A Choice In Writing Their Specifications 

The ALJ determined that Fittings are commodity products produced to American Water 

Works Association ("AWWA") standards. F. 322. As a result, any Fitting, Domestic or Imported, that meets an A WW A specification is functionally interchangeable with any other Fitting 

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that meets the same specification. F.323. The ALJ determined that "(i)n form and functionality, 

(Imported) and Domestic Fittings are completely interchangeable." F. 517. 

The ALJ also determined that end-users, either project engineers or municipalities, have a 

choice regarding the specification of Fittings for a particular waterworks project. F. 332-335, 

346. The specification can be "open," permitting both Domestic and Imported Fittings, or the 

specification can be limited to either Domestic or Imported Fittings. F. 346-347, 349. The 

choice to use a "domestic only" specification may be the result of either end-user preference (because of patriotism, for example) or legal rules. F. 347. The vast majority of end-us~r specifications for Domestic versus Imported Fittings are based on preference, however, and not legal requirements; thus, Domestic and Imported Fittings regularly compete to win engineers' specifications and, when the specifications are open, for the jobs. Schumann, Tr. 4535-36, 4634-35; RX 

712A (Normann Rep. at 28-30); RX 741. The ALJ found that virtually all specifications are now 

open, and that imports constitute the vast majority of fittings purchased (roughly 80-85%). F. 

1028-29.1 

The "Buy American" prOVISlOns of the American Recovery and Reinvestment Act 

("AR") did not create a separate market for Domestic Fittings because its domestic "requirements" were subject to numerous waivers. F. 526, 531. For example, ARR contained three 

types of blanket waivers permitting Imported Fittings to be used when it was in the public interi The ALJ identified only Pennsylvania, certain federal government projects such as Air Force 

bases, and some unidentified municipalities as having domestic-only legislative or regulatory 

requirements. F.348. Both Respondent's expert Dr. Parker Normann and Complaint Counsel's
 

expert Dr. Laurence Schumann agreed that these legal "requirements" are only a very small portion of all specifications-and that they are typically not "requirements" at all, but have exceptions allowing the purchase ofImported Fittings for particular reasons (for example, they are a de 

minimis par of the overall job) or for particular jobs (such as availability and price). Schumann, Tr. 4535-36, 4634-35; RX 712A (Normann Rep. at 28-30); RX 741 (no state, including Pennsylvania, purchased exclusively Domestic Fittings). 

3 
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est, or the cost differential with Domestic Fittings hit certain levels, or Domestic Fittings were 

not available. F. 531. ARR was designed to stimulate, "shovel ready" jobs. Thus, the Environmental Protection Agency ("EPA"), the federal agency with authority for granting or approving AR waivers, issued several nationwide waivers in the public interest right at the start of 

ARR, including broad waivers effective April 2009 and June 2009 for all projects that had incurred debt or solicited bids on or after October 1,2008 and before February 17,2009 and were 

financed (or refinanced) through Clean or Drinking Water State Revolving Funds using assistance from ARR. RX 727; Schumann, Tr. 4577-4581; RX 728; Schumann, Tr. 4585-4586. 

The EPA also granted a blanket, nationwide de minimis waiver from AR's Buy American 

requirement for components, such as Fittings, that comprise no greater than 5% of the total cost 

of the materials used in a waterworks project. F.535-36. Finally, the EPA granted several public interest and other waivers allowing local municipalities to purchase Imported Fittings for use 

on a number of ARR-funded waterworks projects. F. 530, 532; CX 1592, CX 1590, & CX 

1591 (waivers). 

As a result, Imported Fittings were routinely bid on ARRA jobs-and they outsold Domestic Fittings more than two-to-one during the ARR period. The ALJ found that Imported 

Fittings comprised more than 70% of all Fittings sold 
 in 2010, while Domestic Fittings were less 

than 30%. F. 1030, 1033-35.1 Star internally reported numerous AR jobs that accepted bids 

of Imported Fittings. Schumann, Tr. 4621 ("It shows examples in which decision makers had 

changed their mind and allowed for imports"). Complaint Counsel's expert literally ignored that 

evidence and it is not mentioned in the ALJ opinion. Schumann, Tr. 4569-71; 4620-23. 

AR expired in February 2010 and the effects of 
 its funding were largely over by Fall 

2 This was only a modest shift from the years before ARR when Imported Fittings were estimated at roughly 80% and Domestic Fittings at roughly 20%, as discussed supra. 

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2010. F. 1036. Since then, demand for Domestic Fittings has fallen back to pre-AR levels of 

15-20%. F. 1031. Because of ARR's numerous waivers and its short duration, it had limited 

impact on demand and, as a result, the competition between Domestic and Imported Fittings continued unabated. F. 1037-39. 

B. Cheap Imports Have Won The Competition For Specifications 

And Decimated The Producers Of Domestic Fittings 

In the past 15 to 20 years, Imported Fittings have consistently won the competition for 

specifications, and cheap imports from China, India, Korea, and Mexico have flooded the U.S. 

market. F. 462-64,468. The ALJ determined that, beginning in the mid-1980s, Imported Fittings suppliers "began to successfully convert End Users' specifications for domestically produced Fittings to open specifications." F. 463. "Spec-flpping" accelerated in the 1990s and 

2000s, and today Imported Fittings make up the overwhelming majority of the Fittings market. 

!d.; JX 638 (McCutcheon, IHT) at 96 ("I would say it was a regular responsibility of our salespeople to flp specs to import"); F. 467. Between 2003 and 2008, the percentage of Domestic 

Fittings fell from roughly 70% to 15-20%. F. 464; RX 740. In 2003, the International Trade 

Commission ("ITC") unanimously determined that a flood of cheap (and entirely interchangeable) Fittings from China was causing "market disruption" and "material injury" to Domestic 

Fittings producers. F. 469-71. President Bush declined to impose tariffs, however, and the flood 

of cheap Imported Fittings continued. 

The ALJ found that imports have grown to dominate all Fittings sold. F. 465-66. Star 

and Sigma went from start-up importers in the mid-1980s to significant players by 2011, obtaining.% and.% of the overall Fittings market, respectively. F. 356. A number of 

smaller importers also sell in the U.S., including Serampore, Metalfit, NAPAC, and NACIP. F. 

169,176-78,186. 

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The flood of cheap Imported Fittings led traditional U.S. manufacturers such as U.S. 

Pipe, Griffn, and ACIPCO to dramatically reduce their production of Domestic Fittings or exit 

the business entirely. McWane itself 
 was forced to open a foundry in China and close its Tyler, 

Texas foundry due to unsustainably low production levels. F.477-479. Roughly ~OO remaining 

employees lost their jobs as a result of 
 the Tyler South plant closure. F.479. Following the closure of 
 the Tyler South plant, McWane was the "last guy standing" with a foundry (Union Foundry in Aniston, Alabama) dedicated to making small and medium diameter Domestic Fittings. 

But Union Foundry itself was operating at only 30% capacity and desperately needed additional 

tonnage to survive. F.472-76. 

C. The ALJ Did Not Rely On Any Economic Evidence Demonstrating
 

A Domestic-Only Fittings Market 

The ALl found that Complaint Counsel failed to produce any economic evidence in the 

entire case. Initial Dec. at 338 ("Rather than offer its own expert testimony analyzing economic 

data, Complaint Counsel chose an 'attack-the-other-expert' strategy."). His finding of a separate 

Domestic Fittings market is thus unsupported by any economic test because Complaint Counsel 

flatly failed to proffer one. Complaint Counsel's expert did not perform a SSNIP test, elasticity 

test, or any other economic test suffcient to find a separate Domestic Fittings market. He did 

not study actual sales to ARR-funded jobs and he literally ignored ample evidence of blanket 

nationwide and ad hoc AR waivers-and evidence that Star and Sigma bid upon and won 

ARR-funded jobs with Imported Fittings. Schumann, Tr. 4569-71; 4580-4583; 4585-4597; 

4615-16; 4618-24 ("Q. You have no idea sitting here today. . . how many nondomestic fittings 

were sold under the various ARR waivers and exemptions, do you, sir? A. That is correct. . . . 

Q. And you don't know because you didn't bother to tabulate how many of them are ARR 

waivers and exemptions or not; right? A. No."); CX 2294 (domestic bid log). He did not study 

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sales under Pennsylvania law or any municipal regulation to determine the extent of domestic 

"requirements" and whether and when imports were purchased under waivers and exemptions to 

such "requirements." He did not study municipality or contractor specifications or the few entirely non-binding patriotic or other preferences for Domestic Fittings that stil remain. 

In contrast, Respondent's expert, Dr. Normann, presented substantial analyses demonstrating that competition for the specification meant Imported and Domestic Fittings were part of 

a single Fittings market, and that AR did not change the demand curve and create a Domestic-only market. Dr. Normann analyzed the share of 
 Domestic Fittings within the overall Fittings 

": 

market as well as McWane's Domestic Fittings sales by state and determined that the demand for 

Domestic Fittings is driven largely by consumer preference rather than legal requirement, and 

thus was subject to systematic competition from imports which opened the specifications to foreign Fittings. RX 712A (Normann Rep. at 30). Because Domestic and Imported Fittings regularly compete against each other for the specification and are functionally interchangeable, there 

is no separate market for Domestic Fittings. The Initial Decision fails to consider or address Dr. 

Normann's economic analyses and findings of a single Fittings market. 

II. MCWANE DID NOT EXCLUDE STAR
 

A. Star "Clearly" Entered Virtual Domestic Production Quickly And 

Successfully 

The ALJ found that "( c )learly, Star entered the Domestic Fittings market." Initial Dec. at 

383. "Star was able to and did enter the Domestic Fittings market" during tough economic times 

when "(n)o other supplier of imported Fittings" and "no pipe supplier or domestic foundry. . . 

(even) considered entering the market for manufacturing and selling Domestic Fittings." Id. at 

377. The ALl also found that Star did so in only six months. Shortly after ARRA was passed in 

February 2009, Star decided to become a virtual manufacturer of Domestic Fittings. By June 

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2009, Star announced its new, domestic product line to the industr at an A WW A trade show. F. 

1095-96. "By September 2009, Star recorded its first sales of domestically manufactured Fittings to customers." The ALJ found that Star was able to successfully and quickly enter production of Domestic Fittings because there was substantial excess foundry capacity in the U.S. and 

Star had "the expertise needed to operate its own fittings foundry" and "the network of Distributor customers required to enter and compete effectively." F. 1051-52. Star's entry "did not require any changes to Star's relationships with its existing Distrbutor customers" and "Star already had in place the back offce support needed to sell a line of Domestic Fittings." F. 1052, 

1055. 

The ALJ found that Star's entry was significant. "Since its entr in 2009 . . . Star has 

sold Domestic Fittings every month and every year," and grew its sales of Domestic Fittings 

month after month. F. 1127-28, 1134-35. "Star sold Domestic Fittings to many distributors during the last quarter of 2009, and throughout 2010 and 2011," including the largest national waterworks distributors in the United States, HD Supply and Ferguson, and dozens and dozens of 

large regional and local distributors, including Win Wholesale, Dana Kepner, Ilinois Meter, and 

E.J. Prescott-many of which purchased hundreds of thousands of dollars in Domestic Fittings 

from Star in 2010 and 2011. Initial Dec. at 390-96; F. 1136. In 2010, TDG, a large buying cooperative with more than two dozen regional distributors across the countr, selected Star, but 

not McWane, as its "Domestic Fittings vendor partner," "giv(ing) its members an incentive to 

buy from Star. F.1351. 

Star was a fierce competitor who "endeavored to and did 'pick off orders of Domestic 

Fittings froll McWane." F. 1134-35. By the end of 2010, Star's first full year as a Domestic 

Fittings supplier, Star had over.individual customers (nearly as many as McWane's 187 

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customers), including ove. exclusive customers (also nearly as many as McWane).3 The
 

ALJ found that "( s )ince entering the market, Star has made sales of Domestic Fittings to more 

than 100 Distributors" including over '. millon dollars in Domestic Fittings sales in both 

2010 and 2011, and expect(ed) to sell more Domestic Fittings in 2012." F. 1141, 1143. "(S)ince 

its determination in 2009 to enter the Domestic Fittings market, Star's market share went from 

zero to close to 5% in 2010. Star's share nearly doubled the following year, to approximately 9% 

in 2011." Initial Dec. at 382, F. 1042-1043. "Star was on pace, at the time of 
 trial, to have its 

best year ever for Domestic Fittings sales in 2012." F. 1144.4 

McWane's expert, Dr. Normann, concluded that Star's steady growth and doubling of 
 its 

share was "inconsistent with a rebate policy that effectively forecloses them from the market and 

forces them to sell oddball fittings and not be-not have access to distributors and end customers." Normann, Tr. 5041. He found, for example, that Star's top-sellng items were the same as 

McWane's and thus concluded that Star was not relegated to oddball fittings. RX 754B. He also 

found that Star successfully won domestic business across the country in 2010 and accounted for 

more than 10% of all sales in a number of states. RX 764. 

3 The ALl's finding that "there was no competition to become the exclusive supplier" (Initial 

Dec. at 407) of domestic fittings for distributors is thus factually erroneous: Star successfully 

won more than 50 exclusive distributors for its Domestic Fittings in 2010, its first year with domestic product. See RB at 3; RFF ir 497. In post-trial briefing, Complaint Counsel conceded the 

point, but argued that it was "of 
 no consequence." See CCRFF ir 497. 

4 The ALJ did not address substantial evidence at trial that demonstrated that Star itself touted its 

successful expansion into Domestic Fittings. RX 231 (November 10, 2009 Email from Bhutada: 

"Our domestic quote log is very impressive at $14+ milion. . . Congratulations to you and your 

team for the same."). In February 2010, Mr. McCutcheon enthusiastically responded to the news 

that Star had won all of the Domestic Fittings business of 
 Dana Kepner, a large regional distributor: "Yahoooooo!!" McCutcheon, Tr. 2612-2613, 2595; CX 0585. In April 
 2010, a Star sales 

manager hailed yet another new customer, Mainline Supply, and expressly underscored that Tyler's rebate letter was "all bark and no bite." McCutcheon, Tr. 2615-2617; JX 695; Leider, Dep. 

at 176-181; RX 280. 

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The ALJ noted that Complaint Counsel's expert, on the other hand, did not employ any 

economic test of exclusion. Moreover, Dr. Schumann was unable to identify a single distributor-out of the "at least 630 separate waterworks Distributors in the United States"-who
 

wanted to purchase Star Domestic Fittings but could not because ofMcWane's rebate policy. F. 

375; Schumann, Tr. 4440. 

Commissioner Rosch concluded that summary decision should have been granted in 

McWane's favor on Counts 6 and 7 because "the undisputed facts demonstrate that Star's entry 

was not de minimis or trivial (which) is dispositive as a matter oflaw." Rosch Dissent at 5. The' 

ALl's recommendation on Counts 6 and 7, however, was made "(r)egardless of the economic 

expert testimony," which was one-sided in McWane's favor, and regardless of Star's "clear()" 

entry. Initial Dec. at 338, 380. 

B. The ALJ Found That Star Was An Ineffcient Competitor 

Long before McWane's rebate letter, Star decided not to buy or build its own foundry, 

which would have been very expensive and very risky in light of ARR's short-term and uncertain effect. Instead it expanded into domestic by engaging in virtual domestic manufacturing, 

i.e., by hiring numerous third-party jobber foundries to make Domestic Fittings for Star with patterns sourced in China and shipped to the U.S. Initial Dec. at 400; F. 1409-10. The multiple 

jobber foundries producing Star's Domestic Fittings made small volumes of Fittings and their 

costs were, thus, higher than McWane's. In addition, each foundry added a_ mark-up 

to cover costs and profit. F. 1413. The additional shipping costs necessary to transport Fittings
 

from the independent foundries to Star's Houston facility for finishing added another. to 

Star's overall costs. F. 1411.
 

The ALJ found, as a result, that Star was "a less effcient supplier of domestic Fittings 

than Mc Wane because of its use of multiple jobber factories, rather than its own, dedicated foun10 
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dry." Initial Dec. at 411. He found that Star's decision to expand via a more costly means of 

production had significant ramifications for Star's prices: for example, there were "numerous 

states where Star's average price is higher than McWane's," and Star generally "failed to price at 

a discount to McWane." F. 1089-90. Thus, Star's high-cost entry did not enhance consumer 

welfare: "the presence of Star in the Domestic Fittings market in various states did not result in 

lower prices. In those states where Mc Wane had effectively one hundred percent of the Domestic Fittings sales, McWane's pricing was not higher than in those states where McWane had a 

lower share of 
 Domestic Fittings sales." F.1090. 

Star's ineffciency compared to McWane means that its high-cost entry was not beneficial to consumers (and its non-exclusion was, thus, meaningless to competition). The ALJ found 

no measureable harm to consumers. Instead, he found only a theoretical (and attenuated) potential harm: "(w)ithout suffcient sales volume, Star was unable to purchase its own foundry.
 

Without its own foundry, Star's costs were higher, and therefore its prices were higher," which 

"hindered Star's abilty to compete effectively." Initial Dec. at 411. The ALJ did not find that 

Star was poised to buy a foundry, let alone a foundry as efficient as McWane's Union Foundry, 

and Star witnesses testified they would have had to purchase and modify multiple foundries to 

make a full line of Domestic Fittings. F. 11 02, 11 06; Bhargava, Tr. 2946 ("The foundries normally that are in contract manufacturing, they are not totally suitable for in the most costeffective manner to make the fittings"). That would have taken years. 
 and required substantial 

investments (and risk)-with no guarantee, of course, that their costs would be as low as Union 

Foundry. 

Moreover, the ALl expressly found that Star's failure to win suffcient business to justify 

purchasing a foundry (or foundries) was attibutable to many shortcomings that had nothing to 

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do with Mc Wane: "It cannot be disputed that Star was unable to capture more Domestic Fittings 

sales for reasons other than McWane's Full Support Program." Initial Dec. at 403, 411-413 

("Star was unable to capture more business for reasons entirely unrelated to McWane's" rebate 

letter"). The ALJ found, for example, numerous "reasons for Distributors choosing not to purchase Domestic Fittings from Star other than McWane's Full Support Program, including concerns about Star's inventory, the quality of fittings produced at several different foundries, and 

the timeliness of delivery." !d. at 399-400. Indeed, Star's domestic bid log contained dozens of 

jobs it lost in the Fall of 2009 and well into Spring 2010 because it did not have product available or had delays in shipping. McCutcheon, Tr. 2632-2634. 

A number of distributors were cautious about purchasing Domestic Fittings from Star because of its poor reputation among the distributors and a general lack of confidence based on 

prior experiences. For example, the ALJ found that Ferguson, the second-largest waterworks
 

distributor nationwide, "was reluctant to purchase Domestic Fittings from Star" because of "past . 

business dealings with Star that put a strain on the relationship between the two companies"­

this strain (and not McWane's rebate letter) was the "leading component in Ferguson's decision 

to not purchase Domestic Fittings from Star." F.1272-75. Ilinois Meter, likewise, had a "negative experience with Star's reliability as a supplier" and "would have purchased 90-plus percent 

of its Domestic Fittings from Mc Wane" regardless of its rebate policy, which "did not affect Ilinois Meter's decision 
 to not buy Domestic Fittings from Star." F. 1359-60. The largest distributor in the industr, HD Supply, "had concerns" about Star's lack of track record with Domestic
 

Fittings which it believed posed "risks to HD Supply's ability to service its own customers." F. 

1253-57. 

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Nonetheless, each of these distributors and 100-plus additional distributors purchased 

Domestic Fittings from Star, and with no consequence at all: McWane "never withheld rebates 

from or refused to sell to these Distributors." Initial Dec. at 403; F. 1250, 1257, 1277-1279, 

1320, 1344.
 

C. The ALJ Found That McWane's Rebate Policy Was Short-Term. 

And Allowed Union Foundry To Continue Operating More Effciently Than Star 

McWane's rebate letter was issued in September 2009 and was changed less than six 

months later. F. 1595-96; Tatman, Tr. 707-709. The letter merely stated that McWane would 

adopt a rebate policy where customers who elected not to support the program "may" forgo participation in any unpaid rebates for Domestic Fittings "or" shipment of their Domestic Fittings 

"for up to 12 weeks." F. 1173. By January 2010, McWane changed its policy to eliminate the 

provision that distributors "may" forego shipments for "up to 12 weeks." Tatman, Tr. 707-709. 

The ALJ acknowledged that McWane's letter was purposely written with the words 

"may" and "of' because the author of the letter was taking "a weak stance" against the more 

powerful distributors. F. 1178 ("I know when I write this letter that I'm a Chihuahua barking at 

Rotteiler and I know who has the power here"). McWane's customers were at all times free to 

purchase Domestic Fittings from Star, and as the ALJ found, dozens and dozens of McWane's 

customers did so. Initial Dec. at 382 

The rebate letter had significant pro-competitive benefits: it kept the most effcient producer of 
 Domestic Fittings alive. The ALl found cheap imports had decimated the U.S. foundry 

business and forced other producers to shut down. In November 2008, "faced with high inventory levels and insuffcient demand for domestic Fittings, McWane () closed its Tyler South 

plant." Initial Dec. at 414; F. 477. "Prior to closing Tyler South, both of 
 McWane's U.S. plants 

were 'throttled down as low as you could throttle them . . . we can't keep two plants limping 

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along, not meeting our inventory objectives and bleeding milions of dollars a year.''' F. 478. 

Mc Wane had one dedicated domestic foundry left-Union foundry-which was operating at less 

than one-third of its rated capacity. Thus, "(b )ecause its last remaining domestic foundry had 

high inventory levels and insuffcient demand," McWane implemented its September 2009 rebate policy "to persuade McWane's customers to support McWane's full 
 line of Domestic Fittings" in an effort to keep the foundry open. Initial Dec. at 415. 

The simple fact was that cheap imports had decimated the Domestic Fittings industry, 

and there was insufficient demand to keep McWane's last domestic foundry afloat. When confronted with Star's announcement in June 2009 that it planned to offer Domestic Fittings, 

"McWane was concerned that if Star entered the Domestic Fittings market, McWane would not 

be able to generate enough business to operate its last foundry." Initial Dec. at 416. McWane 

simply wanted to incentivize customers not to "cherr-pick" it "by purchasing the highest-


selling, fastest-moving items (the 'A' and 'B' items) from Star, while purchasing from McWane 

only the slower-moving, infrequently-needed and higher-cost 'c' and 'D' items." Id.; F. 1147,
 

1175. 

At the same time, as the ALJ found, "Mc Wane had little or no ability to dictate terms to 

Distributors, who held significant market power over it." F. 1178. McWane "understood that 

the impact of 
 the ARR would be short-lived and did not want to overcharge for Domestic Fittings in the short term at the expense of harming its position in the overall Fittings market." F. 

1086. The ALJ found that "McWane's Domestic Fittings prices were essentially flat, even during the AR period." Initial Dec. at 380. 

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III. THE MDA DID NOT EXCLUDE SIGMA
 

A. The ALJ Found That Sigma Was Not A Viable Potential Domestic 

Fittings Competitor 

The ALl determined that "Complaint Counsel has not shown that Sigma was a potential 

competitor." Initial Dec. at 29. ARR was a one-year statute enacted in February 2009 to provide a modest stimulus for "shovel-ready" jobs. F. 524. But Sigma was in dire financial straits 

throughout 2009. By Summer 2009-halfway through ARR's short life-Sigma had not taken 

suffcient steps to begin manufacturing Fittings in the United States and thus, "Sigma did not 

have a viable domestic production option" for taking advantage of ARR' s remaining days other 

than buying from McWane. F.1473. 

1. Sigma's Dire Financial Straits Crippled Its Abilty To
 

Virtually Manufacture Domestic Fittings 

By Sigma's own estimates, the total cost to begin manufacturing Domestic Fittings was 

between $5-10 milion. F. 1480. However, in 2009 Sigma was in a "precarious" and "grave" 

financial position. F. 1483-1484. Sigma's sales were downll milion dollars and its EBITDA 

F. 1485. Sigma's long-term debt was approximately
 

II milion dollars and the company breached its bank covenants in 2009. F. 1488-90. A significant amount of Sigma's debt carried extremely high interest rates. F. 1489: For example, 

Sigma was required to pay interest in the high double digits on a loan from Ares Capital, an unsecured lender who held 
 II milion dollars of Sigma's debt. F. 1493-94. Simply put, Sigma
 

lacked suffcient funds to invest in a Domestic Fittings operation on its own and its Board of Directors and lenders never authorized it to invest in becoming a Domestic Fittings supplier. F. 

1499-1503. 

Without suffcient financial support, Sigma was incapable of 
 taking the necessary steps to 

implement domestic manufacturing. Sigma estimated it needed 730 patterns and hundreds of 

15 
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core boxes to have a full line of Domestic Fittings. F. 1468. As of mid-2009, it had no core 

boxes and only a few sample patterns. F. 1465, 1471-1472. Moreover, Sigma owned no domestic foundries and had no contracts with existing domestic foundries. F. 1470. Sigma owned no 

machining or finishing facilities. F. 1465, 1471-72. According to Sigma's CEO, Victor Pais, the 

company's investigation of potential virtal domestic manufacturing had not advanced significandy and, by mid-2009, was "a not very discrete or quantifiable effort." F. 1466. Indeed, in 

late Summer 2009, Sigma informed U.S. Pipe that it "has not made any concrete plans to either 

invest in all the required tooling or not invest at alL." F. 1467.5 

2. Sigma Was Unable To Manufacture Domestic Fittings
 

Within The Short AR Window 

AR was a one-year statute enacted in February 2009 that provided modest stimulus 

funds for "shovel-ready" jobs. F. 1032. The ALJ determined that "(r)egardless of whether 

Sigma had the financial capability to produce Domestic Fittings by contracting with independent, 

domestic foundries, it did not have the time required to do so" in time to compete for ARfunded jobs. Initial Dec. at 427. The ALJ found that making a full line of 
 Domestic Fittings required a lead time of at least 18-24 months; making a partial line of the highest-volume items 

stil required at least 6-8 months before even one Domestic Fitting might be commercially available. F. 1421, 1476. Thus, even if Sigma's dire financial condition were magically cured and it 

had decided to go forward with virtal manufacturing in Fall 
 2009, it would not have had its first 

Domestic Fittings commercially available until at least Spring 2010 (right as ARR expired) and 

5 The diffculties and risks of getting into virtual domestic production are underscored by
 

Sigma's contemporaneous attempt to get into domestic pipe restraints, a much simpler product 

with only a few dozen SKUs (rather than the thousands needed for fittings). Sigma's domestic 

restraint effort utterly failed: the company overran its budget by millons and even today has 

produced only a handful of restraints. The effort was a "disaster" and "very unsuccessfuL." F. 

1506-07. 

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it would not have had a complete Domestic Fittings line until a year or more later, long after 

ARR funding had dried up. F.1476. 

B. The MDA Allowed McWane To Keep Its Effcient Union Foundry 

In Business 

Union Foundry, McWane's last remaining U.S. facilty, operated at only 30% capacity in 

2008-09 and desperately needed the additional tonnage provided by the MDA. Tatman, Tr. 964. 

The MDA not only allowed McWane to keep Union Foundr open (and its people employed), it 

allowed it to continue producing Domestic Fittings more efficiently than Star-and, thus, 

McWane was able to benefit customers with lower prices than Star. Indeed, the ALJ found that 

McWane's Domestic Fittings prices were lower than Star's in virtually every state. F. 1089; 

Normann, Tr. 4979-4980; RX 712A; Normann Rep. at 68-69, Figure 27, in camera. Notably, 

Complaint Counsel did not proffer any measure of economic evidence of harm to consumers as a 

result of the MDA, and the ALJ likewise found none. The ALl also did not find, and Complaint 

Counsel did not proffer any evidence, that the MDA affected Star's entry. F. 1141. 

SUMMARY OF ARGUMENT 

The ALJ was very clear that his Count 4-7 recommendations were not based on any economic evidence on any element of Complaint Counsel's claims: Complaint Counsel utterly 

failed to proffer any economic evidence to support its theory that McWane monopolized a purported Domestic Fittings market (or attempted or conspired to do so). Initial Dec. at 338. That
 

failure was complete. Complaint Counsel failed to offer any elasticity test (or any other economic test) demonstrating a Domestic Fittings market. It failed to offer any economic test of exclusion or any other type of monopoly conduct. It failed to offer any economic test demonstrating any actual or likely injury to consumers from Me Wane's rebate letter or the MDA. 

17 
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This appeal thus presents a test case: can the Commission find a violation of Section 5 

without any robust economic test supporting the key elements of claimed antitrust violations? It 

also presents the Commission with an opportnity to determine whether Section 5 has limits or 

whether it is utterly unbounded-and whether it is flatly inconsistent with mainstream antitrst 

law. 

The ALl's fact-findings compel a ruling in McWane's favor on Counts 4-7 for the reasons articulated by Commissioner Rosch in his two dissents from this enforcement action: 

mainstream antitrust laws "bless()" McWane's rebate letter and the MDA, and the "undisputed 

facts" demonstrate that neither of the two "excluded" companies was excluded by Mc Wane. Indeed, the ALJ found Star "clearly" entered into virtual production of Domestic Fittings quickly 

and successfully, and that Sigma's financial straits rendered it unable to enter production in a 

timely manner. These undisputed facts, "( e )valuated under any objective standard," "would not 

lead a rational trier of fact to find for Complaint Counsel" and requires a ruling in McWane's 

favor. Rosch Dissent at 5. 

Indeed, to find a violation of Section 5 on Counts 6 and 7, the Commission would have to 

conclude that common sense words are meaningless: that Star's "clear()" entry into Domestic 

Fittings-and thus its non-exclusion-somehow constituted exclusion; that Star's "less effcient" 

and higher-cost production (and higher prices) were somehow beneficial to consumers; and that 

McWane's weakly worded rebate letter ("may" or "or" "for up to 12 weeks")-and the complete 

lack of any sustained enforcement-was somehow a hard refusal to deaL. 

i. Counts 6 and 7 Fail Because McWane Did Not Monopolize Domestic Fittings Or Exclude Star 

ALJ found that Imported and Domestic Fittings are entirely interchangeable and, indeed, 

a flood of cheap imports surged into the u.s. over the last decade and drove the once-thriving
 

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domestic industry to the brink of extinction. AR did not change any of that. It was shortterm in nature, modest, and had numerous waivers permitting imported product to be bid on 

ARR-funded jobs. As the ALJ found, and every fact witness testified, ARR had little or no 

effect on demand for Domestic Fittings during its short life. There is, thus, no separate Domestic 

Fittings market. 

Nor did Mc Wane somehow exclude Star from expanding into Domestic Fittings. On the 

contrary, the ALJ found that Star "(c)learly" succeeded in expanding into virtal manufacturing 

of Domestic Fittings quickly and effectively in roughly six months between Spring and Fall 

2009. Initial Dec. at 383. In 2010, its first full year with domestic product, Star had_ 

domestic customers-including. exclusive customers. F. 1141-43. It sold to the two national distributors (HD Supply and Ferguson) and dozens of 
 large regional and local distributors. 

F. 1136. "(S)ince its determination in 2009 to enter the Domestic Fittings market, Star's market
 

share went from zero to almost 10% in 2011." Initial Dec. at 382; F. 1042-1043. "Star was on 

pace, at the time of 
 trial, to have its best year ever for Domestic Fittings sales in 2012." F. 1144. 

All of that growth was accomplished after McWane's September 2009 rebate letter-which 

Star's own witnesses testified was "more bark than bite." McCutcheon, Tr. 2615-2617; RX 280. 

Indeed, Complaint Counsel's expert conceded that he was unable to identify even a single distributor-out of 630-which wanted to buy Star domestic, but did not because of McWane's rebate letter. Star's quick and successful entry-its "sales of Domestic Fittings to more than 100 

Distributors" and over '. milion dollars in Domestic Fittings sales in both 2010 and
 

2011"-precludes a finding that McWane is a monopolist or that it somehow "foreclosed" Star. 

What is left is nothing but pro-competitive conduct: a rebate letter that very "weak(ly)" tried to 

prevent Star from cherr-picking high-volume Fittings sales in order to preserve the survival of 

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the last dedicated Fittings foundry in the U.S. which-as the ALJ found-was more "effcient" 

than Star's use of six or seven higher-cost jobber foundries, which had "higher" costs, required 

additional transportation costs, and thus led Star to charge "higher" prices than McWane's and 

"hindered (its) abilty to compete effectively." Initial Dec. at 411. 

Star's successful entry into the production of Domestic Fittings affirmatively disproves 

any allegations that Mc Wane exercised monopoly power, and is dispositive here. Brooke Group 

Ltd. v. Brown & Wiliamson Tobacco Corp., 509 U.S. 209, 226 (1993) ("(W)here new entr is 

easy. . . summary disposition of 
 the case is appropriate"). It is well-established that actual entry 

of a new competitor or actual expansion by an existing competitor "precludes a finding that exclusive dealing is an entr barrier of any significance" Omega Envtl., Inc. v. Gilbarco, Inc., 127 

F.3d 1157, 1164 (9th Cir. 1997), and easy entry conditions "rebut inferences of 
 market power." 

Tops Mks., Inc. v. Quality Mkts., Inc., 142 F.3d 90,99 (2d Cir. 1998). Thus, the ALl's findings 

regarding Star's actual successful entry-the fact that it has been able to source a full line of
 

Domestic Fittings and bid for jobs across the country-mandates the conclusion that McWane 

did not (and could not) exercise monopoly power. 

Exclusive deals are only problematic if they "foreclose competition in a substantial share 

of the line of commerce affected," Tampa Elec. Co. v. Nashvile Coal Co., 365 U.S. 320, 327 

(1961), which requires that they "foreclose so large a percentage of the available . . . outlets that 

entry into the concentrated market is unreasonably constricted," E. Food Servs., Inc. v. Pontifcal 

Catholic Univ. Servs. Ass'n, Inc., 357 F.3d 1,8 (1st Cir. 2004), and significant sellers are "frozen 

out of a market by the exclusive deaL." Jefferson Parish Hosp. Dist. NO.2 v. Hyde, 466 U.S. 2, 

45 (1984) (O'Connor, J., concurring). Here, that clearly was not the case. 

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II. Counts 4 and 5 Fail Because The MDA Did Not Exclude Sigma Or
 

Restrain Trade 

The ALJ also found that McWane did not exclude Sigma from Domestic Fittings, as 

Sigma was never an actual "potential competitor." Initial Dec. at 29. Thus, the ALl's recommendation of liability against Mc Wane on Counts 4 and 5 are likewise erroneous as a matter of 

law. 

Sigma was in dire financial straits in 2009 and it did not take the "concrete steps" necessary to expand into Domestic Fittings. F. 1467. Saddled with at least _ milion in debt (including tens of 
 milions at extraordinarily high interest rates) and plummeting revenue, the company was hamstrung. F. 1488-90. Neither its board of directors nor its banks authorized the 

company to exceed its capital expense limits. F. 1499-1503. Without suffcient financial support, Sigma was incapable of taking the necessary steps to implement domestic manufacturing 

during AR's brief and modest stimulus for "shovel-ready" projects, and it was thus never an 

"actual potential competitor" in the alleged domestic fittings market. 

The ALJ also found that "(r)egardless of whether Sigma had the financial capability to 

produce Domestic Fittings by contracting with independent, domestic foundries, it did not have 

the time required to do so" in time to compete for ARR-fundedjobs. Initial Dec. at 427. Thus, 

Sigma had no viable option in mid-2009 for getting into Domestic Fittings during the brief BuyAmerica period, and its decision not to enter domestic production had nothing to do with 

McWane. 

Case law makes clear that a firm is not an "actual or potential competitor" unless it has 

taken "affirmative steps to enter the business(,)" had an "intention" and "preparedness" to do so. 

Gas Utils. Co. of Alabama, Inc. v. S. Natural Gas Co., 996 F.2d 282,283 (lIth Cir. 1993) (affirming summary judgment because "(i)nquiry into procedures is insuffcient to establish prepar21 
PUBLIC 

edness . . .party must take some affrmative step to enter"); Cable Holdings of Ga., Inc. v. Home 

Video, Inc., 825 F.2d 1559, 1562 (11th Cir. 1987) (affrming defense verdict because "ample 

evidence" demonstrated that plaintiff did not have "an intention to enter the business" and a 

"showing of 
 preparedness"); Sunbeam Television Corp., v. Nielsen Media Research, Inc., 763 F. 

Supp. 2d 1341, 1354 (S.D.Fla. 2011) ("a would-be purchaser suing an incumbent monopolist for 

excluding a potential competitor. . . must prove the excluded firm was wiling and able to supply 

it but for the incumbent firm's exclusionary conduct"). 

QUESTIONS PRESENTED 

1. Whether the ALl's fact findings that Domestic and Imported Fittings are fungible commodities that compete for end users' job specifications (and undisputed facts demonstrating they continued to do so under AR) mean that his legal finding of a Domestic Fittings market was error 

as a matter of law? 

2. Whether the ALl's fact findings that Star clearly entered Domestic Fittings sales, but was 

simply less efficient than McWane mean that his legal finding of monopolization (and attempt) 

under Counts 6 and 7 was error as a matter of law? 

3. Whether the ALl's fact findings that Sigma was not a potential Domestic Fittings competitor 

mean that his legal findings that the MDA unreasonably restrained trade and constituted a conspiracy to monopolize under Counts 4 and 5 was error as a matter of law? 

4. Whether the ALl's fact findings that the MDA and rebate letter ended years ago (and its failure to find they wil recur) mean that his entry of 
 injunctive reliefwas error as a matter oflaw? 

COMMISSION STANDAR OF REVIEW 

The Commission's standard of review is de novo. FTC Rule 3.54(a); In re TransUnion 

Corp., No. 9255,2000 FTC LEXIS 23 (Feb. 10,2000). The Initial Decision and ALJ's findings 

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must be supported by a "preponderance of the evidence" that is "reliable and probative," and 

"substantiaL." In re Chi. Bridge & Iron Co., No. 9300,2005 FTC LEXIS 215, at *3 nA (Jan. 6, 

2005); FTC Rule 3.51 
 (c)(I); 5 U.S.C. §556(d) (2011). 

ARGUMENT 

I. THERE IS NO DOMESTIC FITTINGS MAT
 

The ALl's conclusion that there is a "Domestic Fittings market () comprised of Domestic 

Fittings sold into all domestic-only specifications, including domestic-only specifications required by law and those based upon End User preference" is not supported by the ALl's findings 

of fact. Initial Dec. at 248. It is Complaint Counsel's burden to define the relevant antitrust
 

product market which must include all products that are "reasonably interchangeable by consumers for the same purposes" from a buyer's point of 
 view at the time it is considering which products to purchase. United States v. E.l du Pont de Nemours & Co., 351 U.S. 377, 395 (1956); Ky. 

Speedway, LLC v. Nat'!. Ass'n of Stock Car Auto Racing, Inc., 588 F.3d 908, 916-17 (6th Cir. 

2009); Queen City Pizza, Inc. v. Domino's Pizza, Inc., 124 F.3d 430,436 (3d Cir. 1997); Rebel 

Oil Co. v. Atl. Richfield Co., 51 F.3d 1421, 1435 (9th Cir. 1995). 

The relevant market must be defined by an economic test. See Queen City, 124 F.3d at 

438; Kentucky Speedway, 588 F.3d at 919. The most common economic tool used to determine 

the relevant product market is a test of the "cross-elasticity of demand," which is "a measure of 

the substitutabilty of products from the point of view of buyers." It measures the responsiveness
 

of the demand for one product to changes in the price of a different product. Queen City, 124 

F .3d at 438 n.6. 

The ALJ did not find that any cross-elasticity study (or any other economic test) supported a Domestic Fittings market, and Complaint Counsel did not submit any such evidence. 

Instead, Complaint Counsel's expert, Dr. Schumann, employed no economic test of the relevant 

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product market: he not perform any analysis of the cross-elasticity of demand between Domestic 

and non-Domestic Fittings, relying instead on his (admittedly, "controversial") hypothetical application of a theory developed for merger-not monopoly--ases. See Schumann, Tr. 4542, 

4569,4571. He admitted he did not determine the extent of AR waivers granted by the EPA 

(including several blanket, nationwide waivers) and that he did not analyze any records of 

AR-fundedjobs to determine the extent to which non-Domestic Fittings were used on ARR 

jobs. Schumann, Tr. 4569, 4571. He conceded, though, that there was clear evidence Imported 

Fittings were used on some AR jobs-but he ignored that evidence. For example, Star's bid 

logs contain numerous jobs where Star reported Imported Fittings were bid on ARR jobs. 

Schumann, Tr. 4379-4381; McCutcheon, Tr. 2602, 2632-2634; CX 2294. 

Dr. Schumann's admitted failure to perform a proper cross-elasticity analysis, using 

methods which had been tested and subject to peer review, is fatal to Complaint Counsel's market definition. See Ky. Speedway, 588 F.3d at 918-19 (rejecting an expert's application of his 

"own version" of a Small but Significant Non-transitory Increase in Price test because it was not 

generally accepted within the scientific community); see also us. Anchor Mfg., Inc. v. Rule 

Inds., Inc., 7 F.3d 986, 998 (11th Cir. 1993) (affirming dismissal because relevant market "must 

be supported by demonstrable empirical evidence"). 

The ALl's Conclusion of Law regarding the existence of a so-called "Domestic Fittings 

market" is thus inconsistent with his own findings of fact that Imported Fittings suppliers have 

been successfully competing to convert end users' job specifications from domestic to open for 

years; and that, as a result of their success, Imported Fittings constitute the lion's share of all tons 

sold in the United States-even during ARR's short window. See F. 463-467, F. 1026-1031, F. 

1033-1039. 

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Although it was Complaint Counsel's burden to present quantifiable economic analyses 

in order to demonstrate that a so-called domestic-only Fittings market existed, the ALJ instead 

imposed on McWane the burden of proving that a domestic-only Fittings market did not exist. 

Initial Dec. at 249. This improper shifting of the burden of proof is unsupported by the ALl's 

own findings of fact and controllng legal precedent, and therefore should not be accepted. See 

Queen City Pizza, Inc., 124 F.3d at 436 ("Plaintiffs have the burden of defining the relevant market); Kentucky Speedway, 588 F .3d at 916 (holding that the plaintiff bears the burden of defining 

the relevant product market); 16 C.F.R. § 3.43(a) ("(c)ounsel representing the Commission. . 

.shall have the burden of proof. . . ."). Moreover, without a Domestic Fittings market, Counts 4­

7 fail because the ALJ did not find that Mc Wane monopolized (or attempted or conspired to monopolize) an overall Fittings market. On the contrary, McWane's share of all Fittings has steadily declined while Star and Sigma and other imports have steadily increased. 

II. MCWANE'S REBATE LETTER DID NOT VIOLATE SECTION 5
 

A. Star's Successful Entry Precludes A Finding Of 
 Monopolization 

(Or Attempt) As A Matter of Law 

The ALl's recommendations of 
 liability for Counts 6 and 7 (alleging monopolization and 

attempted monopolization in violation of Section 5) are erroneous as a matter of law. Sherman 

Act Section 2 cases are instructive in analyzing monopolization and attempted monopolization 

claims under Section 5 of the FTC Act. The elements of monopolization under Section 2 are 

"(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." Initial Dec. at 370, citing United States 

v. Grinnell Corp., 384 U.S. 563,570-71 (1966). Attempted monopolization requires proof 
 "(1) 

that the defendant has engaged in predatory or anti 
 competitive conduct with (2) a specific intent 

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to monopolize and (3) a dangerous probability of achieving (or obtaining) monopoly power." 

Initial Dec. at 370-71, citing Spectrum Sports, Inc. v. McQuilan, 506 U.S. 447, 456 (1993). 

"Monopoly power" is defined as "the abilty (I) to price substantially above the competitive level and (2) to persist in doing so for a signifcant period without erosion by new entr or 

expansion." AD/SAT v. Associated Press, 181 F.3d 216, 226-27 (2d Cir. 1999) (emphasis 

added). If a defendant with large market share is unable to exclude competitors, then it cannot 

exercise monopoly power. Tops Mks, 142 F.3d at 99; see also Metro Mobile CTS, Inc. v. NewVector Commc'ns., Inc., 892 F.2d 62,63 (9th Cir. 1989) (a defendant's possession of even 100% 

market share does not necessarily establish defendant has power to charge monopoly prices or 

control output); Oahu Gas Serv., Inc. v. Pacifc Res., Inc., 838 F.2d 360, 366 (9th Cir. 1988) (a 

high market share wil not raise an inference of monopoly power). 

Here, the ALJ found that "( c )learly" Star "was able to and did enter the Domestic Fittings 

market," and did so quickly. Initial Dec. at 377, 382. The ALJ found that "Star realized that 

ARR provided a limited time window of opportunity and, in March or April 2009, elected to 

pursue contract manufacturing" to "produce Domestic Fittings." F. 1098, 1106. By Summer 

2009, Star acquired the patterns from China and announced its entry into virtual Domestic Fittings manufacturing. "By September 2009, Star recorded its first sales of domestically manufactured Fittings to customers." Initial Dec. at 383. 

The ALJ found that "since its entry in 2009, Star has sold Domestic fittings every month 

and every year" and was able to successfully "pick off' orders of Domestic Fittings from 

McWane." F. 1134-35. "Star sold Domestic Fittings to many distributors" since it entered production, including the largest waterworks distributors in the United States, such as "HD Supply, 

Ferguson, WinWater, and Dana Kepner.", F. 1136. The ALJ found that "(s)ince entering the 

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market, Star has made sales of Domestic Fittings to more than 100 Distributors" and at the time 

of trial, was on pace "to have its best year ever for Domestic Fittings sales in 2012." F. 1141-44. 

Notably, "since its determination in 2009 to enter the Domestic Fittings market, Star's market 

share went from zero to almost 10% in 2011." Initial Dec. at 382; F. 1042-1043. 

Moreover, Complaint Counsel's expert conceded that he was unable to identify a single 

distributor--ut of 
 the "at least 630 separate waterworks Distributors in the United States"-who 

wanted to purchase Star domestic Fittings but could not because of 
 McWane's rebate policy. F. 

375; Schumann, Tr. 4440. The ALl's own opinion chronicles the undisputed fact that every single distributor Complaint Counsel called at trial (or in deposition) purchased Domestic Fittings 

from Star (and some purchased hundreds of 
 thousands of dollars' worth). 

As former Commissioner 1. Thomas Rosch noted in his dissents on both the Commission's decision to fie the Complaint, and the Commission's decision on McWane's motion for 

summary decision, "the undisputed facts demonstrate that Star's entr was not de minimis or 

trivial (which) is dispositive as a matter oflaw," and and in any event, "the fact that Star attained 

a 10 percent share of 
 the domestic-only DIPF market-from zero share-in less than three years 

undermines Complaint Counsel's basic theory" and "would not lead a rational trier of fact to find 

for Complaint CounseL." Rosch Dissent at 5; see also Brooke Group, 509 U.S. at 226 ("where 

new entry is easy . . . summary disposition of the case is appropriate"). Well-setted case law 

supports Commissioner Rosch's dissent, and holds that actual expansion by an existing 

competitor (like entry by a new competitor) "precludes a finding that exclusive dealing is an 

entry barrier of significance," Omega Envtl., 127 F.3d atl164, and easy entry conditions "rebut 

inferences of 
 market power." Top Mkts., 142 F.3d at 99. 

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Although McWane's short-term rebate policy incentivized increased purchases through 

conditional rebates, and contained a "weak(1y)" worded provision that customers "may" forego 

shipment of domestic fittings for up to twelve weeks, it did not amount to a "refusal to deal" that 

required customers to buy exclusively from Mc Wane. F. 1178. While a true refusal to deal 

might result in exclusivity in some circumstances, here it plainly did not: many, many customers 

(more than. total) started buying Star's Domestic Fittings after McWane's rebate letter.6 

Unilateral refusals to deal are also generally legitimate. United States v. Colgate & Co., 

250 U.S. 300, 307 (1919) ("In the absence of any purose to create or maintain a monopoly, the 

act does not restrict the long recognized right of trader or manufacturer. . . freely to exercise his 

own independent discretion as to parties with whom he wil deaL"). Some courts have noted a 

narrow exception where competition might be injured if a defendant has monopoly power and 

(a) its customers would lose their right to buy from the defendant for a sustained period of time if 

they bought from another, more effcient producer, (b) the customers have no other choice, and 

(c) they are forced to buy at a higher cost from the defendant. See United States v. Dentsply 

Int'l, Inc., 399 F.3d 181, 194 (3d Cir. 2005) (defendant flatly refused to deal with customers if 

they bought from its rivals, and subsequently imposed significant price increases); Alled 

Orthopedic Appliances Inc. v. Tyco Health Care Group LP, 592 F.3d 991, 996 (9th Cir. 2010) 

6 The record demonstrates that McWane's prices were above-cost at all times and the ALl did 

not find any economic evidence that the letter's statement that customers "may" forego rebates 

"for up to 12 weeks" was exclusionary--r, indeed, implemented in any sustained manner. Indeed, the policy was invoked only at one small distributor out of hundreds, and that distributor 

(Hajoca) lost only a very small rebate. The Supreme Court has repeatedly noted that above-cost 

prices are lawful and cannot cause antitrust injury as a matter of law. Brooke Group Ltd. v. 

Brown & Wiliamson Tobacco Corp., 509 U.S. 209, 223 (1993); Pac. Bell Tel. Co. v. Linkline 

Commc'ns, Inc., 555 U.S. 438, 451 (2009) (plaintiff challenging a defendant's pricing practices 

must prove that "the prices complained of are below an appropriate measure of (the defendant's) 

costs"). 

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("Exclusive dealing involves an agreement between a vendor and a buyer that prevents the buyer 

from purchasing a given good from any other vendor."). 

Here, in contrast, McWane's rebate letter was not an exclusive-dealing agreement because dozens and dozens and dozens of McWane customers started buying Star Domestic Fittings after the letter came out. Nothing in McWane's rebate letter required distributors to commit for a long period of 
 time that they would only purchase McWane's Fittings, and the ALl's 

findings confirmed that distributors always could, and did, buy from Star. Indeed, more than 

. distributors bought Domestic Fittings from Star, including more thanll who exclusively
 

bought from Star--isproving the very idea that McWane forced customers to buy only its Domestic Fittings. Even if Star had been excluded, competition would not have been injured: the 

ALJ found that Star's reliance on 
 jobber foundries made it a less effcient, higher cost supplierand thus that McWane's Domestic Fittings prices were lower in virtually every state. On these 

undisputed facts, as well as the ALl's findings, there was no "refusal to deal" and McWane's 

short-term rebate letter cannot be "exclusive-dealing" as a matter oflaw.7 

B. Star Was Less Effcient Than McWane And Consumers Were Not 

Injured By Its Non-Exclusion 

The ALJ expressly found that Star was "a less efficient supplier of domestic Fittings than 

McWane" whose "costs were higher, and therefore its prices were higher," which "hindered (its) 

abilty to compete effectively." Initial Dec. at 411. The ALJ found that Star's inefficiency, 

higher costs and higher prices hurt its domestic sales, and that "(w)ithout sufficient sales volume, 

Star was unable to purchase its own foundry" or, more precisely, foundries. Id. 

7 Moreover, of course, Mc Wane did not meaningfully enforce its weakly worded letter: again, 

McWane only temporarily stopped sellng to one small distributor (Hajoca)-"(fJrom December 

4,2009 to April 13,2010." Initial Dec. at 404. Hajoca merely switched its domestic purchases
 

to Star during that time period and testified that there was "No harm, no fouL." Pitts Dep. at 

164:13-14. 

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Long-standing Supreme Court pre 
 decent holds that the antitrust laws are designed to 

protect competition, not "inefficient rivals." Copperweld Corp. v. Independence Tube Corp., 467 

U.S. 752, 767-68 (1984) ("an effcient firm may capture unsatisfied customers from an
 

inefficient rival, whose own abilty to compete may suffer as a result. This is . . . precisely the 

sort of competition that promotes the consumer interests that the Sherman Act aims to foster"); 

see also Brooke Group, 509 U.S. at 224 ("It is axiomatic that the antitrust laws were passed for 

'''the protection of competition, not competitors"'). 

Circuit courts have universally followed this precedent and held that competition is only 

injured by exclusion of an "equally effcient" or more effcient competitor. Exclusion of a less 

efficient competitor-like Star, according to the ALl's detailed findings-does not injure consumers. Barry Wright Corp. v. ITT Grinnell Corp., 724 F.2d 227, 236 (1st Cir. 1983) 

("(V)irtually every contract to buy 'forecloses' or 'excludes' alternative sellers from some portion of the market, namely the portion consisting of what was bought"); A.A. Poultr Farms, Inc.
 

v. Rose Acre Farms, Inc., 881 F.2d 1396, 1402 (7th Cir. 1989) ("a desire to extinguish one's rivals is entirely consistent with, often is the motive behind, competition."). Indeed, the purpose 

of the antitrst laws is to promote vigorous competition so that more effcient competitors (like 

McWane) thrive and bring the benefits of their greater effciency (like McWane's lower manufacturing costs and, thus, its lower prices) to consumers. This doctrine has been broadly applied. 

The Ninth Circuit in PeaceHealth firmly held that the antitrust laws should only condemn practices that exclude "equally effcient rivals." Cascade Health Solutions v. Peacehealth,
 

515 F.3d 883, 900, 904-09 (9th Cir. 2008). The Ninth Circuit also rejected a claim of exclusive 

dealing based on "market-share discount and sole-source agreements," which provided "substantial discounts" to customers that purchased all of their requirements from the defendant-but, as 

30
 
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here, "did not contractually obligate. . . customers to purchase anything." Alled Orthopedic, 

592. F.3d at 996-97. The court reasoned that the discounts "did not foreclose (the defendant's) 

customers from competition because a 'competing manufacturer need( ed) only offer a better 

product or a better deal to acquire their (business)." Id. (internal citations omitted). Star was, 

likewise, free to do the same-but priced its products higher than Mc Wane. The Eleventh Circuit has also recognized that it is "not a function of the antitrust laws" to require monopolists to 

"support artificially firms that cannot effectively compete on their own." Seagood Trading 

Corp. v. Jerrico, Inc., 924 F.2d 1555, 1573 (11th Cir. 1991). The Eighth Circuit reached the 

same conclusion regarding alleged de facto exclusive dealing in Concord Boat because defendant's above-cost discounts left ample room for efficient competitors to "lure customers away by 

offering superior discounts." Concord Boat v. Brunswick Corp., 207 F.3d 1039, 1058-59 (8th 

Cir.2000). 

The ALJ found that McWane's rebate letter did not exclude Star-which "(c)learly" 

"was able to and did enter the Domestic Fittings market." Initial Dec. at 377, 382. The ALJ 

found only that Star might have (theoretically) gained even more market sales, but the chain of 

speculation the ALJ relies on to reach his conclusion-about what might have happened if Star 

sold sufficient additional Domestic Fittings to justify the purchase of those hypothetical
 

foundries-is insufficient as a matter of law. The findings of fact merely state that "Star was not 

able to generate a sufficient volume of sales of Domestic Fittings to realize cost effciencies or 

justify operating a foundry of its own" and that "McWane's announcement of its Full Support 

Program on September 22,2009 impacted Star's decision to not move forward with the potential 

acquisition" of a foundry. F. 1401, 1408. The ALJ did not find any specific acquisition of any 

foundry was imminent or likely (or even available for purchase by Star), let alone find a target or 

31 
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targets that had lower manufacturing and finishing costs. Thus, the ALl's holding is inconsistent 

with the well-established principle that the antitrust laws are designed to protect competition, not 

'_i less-effcient competitors. 

The speculative nature of the supposed harm to consumers is underscored by the ALl's 

conclusion that "(i)t cannot be disputed that Star was unable to capture more Domestic Fittings 

sales for reasons other than McWane's Full Support Program." Initial Dec. at 413. Star's Domestic Fittings prices were always higher than McWarie's, (id. at 411), and the ALJ chronicled 

significant distributor "concerns about Star's inventory, the quality of fittings produced at several 

different foundries, and the timeliness of delivery." Id. at 399-400. Indeed, many distributors 

were "reluctant to purchase domestic Fittings from Star" because of 
 its poor reputation. F. 1273­

79,1310-12, 1341-45, 1359-61, 1253-57.
 

C. There Was No Specific Intent To Monopolize And No Dangerous 

Probabilty Of Success
 

To establish an attempted monopoly claim, which is the theory underlying Count 7, a 

plaintiff must prove that the defendant possessed the specific intent to achieve monopoly power 

by predatory or exclusionary conduct; that the defendant in fact engaged in such anti 
 competitive 

conduct; and that a dangerous probability existed that the defendant might have succeeded in its 

attempt to achieve monopoly power. us. Anchor Mfg., 7 F.3d at 993. The intent to beat a competitor or increase one's share is normal competition, not specific intent to monopolize-which 

requires an intent to injure competition and a competitor via the same act, i.e., to harm Star and 

customers (by, for example, excluding Star and then raising prices). Brown Shoe Co. v. United 

States, 370 U.S. 294, 320 (1962) (antitrust laws protect "competition, not competitors"); A.A. 

Poultr, 881 F.2d at 1404 ("Courts should treat with great skepticism complaints by competitors
 

who are injured by the low prices that customer's adore, when the customers are content."). 

32
 
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Here, as the ALJ found, Mc Wane did not have any intent to gouge its customers by raising prices to supra-competitive levels. F. 1086 (McWane "did not want to overcharge for Domestic Fittings"). McWane was merely competing aggressively in an attempt to keep its last remaining domestic foundry open. Moreover, the ALJ did not find that McWane ever charged supra-competitive prices for Domestic Fittings, or that it intended to do so. Initial Dec. at 381. 

Thus, McWane's rebate letter does not amount to anything other than "intent" to beat a competitor, which is insuffcient as a matter of law to establish "specific intent" to monopolize. 

III. THE MDA DID NOT UNREASONABLY RESTRAN TRAE AND WAS
 

NOT A "CONSPIRACY TO MONOPOLIZE" DOMESTIC FITTINGS 

Counts 4 and 5 of the Complaint allege that the MDA constituted an unreasonable restraint of trade and a conspiracy to monopolize in violation of Section 5 of the FTC Act. Complaint irir 67-68. The elements of a conspiracy to restrain trade in violation of Sherman Act Section 1 are (l) a contract, combination, or conspiracy among two or more separate entities; that (2) 

unreasonably restrains trade. Initial Dec. at 420; Realcomp II, Ltd. v. FTC, 635 F.3d 815, 824 

(6th Cir. 2011). The elements of a claim for conspiracy to monopolize are (1) concerted action, 

with (2) the specific intent to monopolize, and (3) an overt act in furtherance of the conspiracy. 

Initial Dec. at 438; Levine v. Cent. Fla. Med. Affliates, 72 F.3d 1538, 1556 (lIth Cir. 1996); 

Thompson v. Metro. Multi-List, Inc., 934 F.2d 1566, 1582 (lIth Cir. 1991). The Initial Decision's finding that "Complaint Counsel has not shown that Sigma was a potential competitor" is 

dispositive of both counts. All that is left is, at most, a single exclusive contract between
 

McWane and one of 630 distributors that was in effect for less than one year. Initial Dec. at 429. 

A. The ALJ's Finding That Sigma Was Not An Actual Or Potential Domestic Fittings Competitor Is Dispositive 

The ALl's finding that Sigma was not an actual or potential competitor in the market for 

Domestic Fittings means that Sigma was not excluded as a matter of law. See Gas Utils., 996 

33
 
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F.2d at 283 (affirming summary judgment because plaintiff 
 failed to demonstrate that it was prepared to enter the relevant market and, thus, was not excluded by defendant); Cable Holdings, 

825 F.2d at 1563 (affirming jury verdict that defendant did not violate Sections 1 and 2 of the 

Sherman Act where there was "ample evidence" that defendant lacked preparedness). The ALJ 

determined that Sigma was in a "grave" and "precarious position overall in financial terms" and 

entering domestic manufacturing was simply not a viable option. F. 1483, 1470-72. The ALJ 

also determined that even if Sigma had the financial capabilty to enter domestic manufacturing, 

it simply did not have the time to manufacture Domestic Fittings within the AR period. Initial Dec. at 427. 

The evidence at trial demonstrated that it was Sigma-not McWane or the MDA-that 

excluded itself from the purported Domestic Fittings market. The ALl's finding that as of September 2009, Sigma simply did not have a viable domestic production option demonstrates that 

the MDA did not exclude Sigma from the market for Domestic Fittings as a matter of law. F. 

1473; see Yamaha Motor Co. v. FTC, 657 F.2d 971, 977 (8th Cir. 1981) (requiring "available 

feasible means" for entering the relevant market); Engine Specialties, Inc. v. Bombardier, Ltd., 

605 F.2d 1, 9 (l st Cir. 1979) (requiring "intent and ability); Conergy AG v. MEMC Elec. Materials, Inc., 651 F. Supp. 2d 51, 57-58 (S.D.N.Y. 2009) (requiring "affirmative acts" to enter the 

proposed business); Cable Holdings of 
 Ga., 825 F.2d at 1562 (requiring "an intention to enter the 

business" and a "showing of preparedness"); Sunbeam Television, 763 F. Supp. 2d at 1354 ("a 

would-be purchaser suing an incumbent monopolist for excluding a potential competitor . . . 

must prove the excluded firm was wiling and able to supply it but for the incumbent firm's exclusionary conduct"). 

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B. The MDA Was A Buy-Sell Arrangement Between McWane And 

One Of Over 600 Distributors And Not An Unreasonable Vertical 

Restraint Of 
 Trade Nor A Conspiracy To Monopolize 

Because the Sigma was not an actual potential competitor in the market for Domestic Fittings, the MDA is properly analyzed as an exclusive vertical buy-sell arrangement between one 

supplier (McWane) and one of over 600 distributors (Sigma). Exclusive deals are only anticompetitive if there is proof that competition has been foreclosed in a substantial share of the line of 

commerce affected. Standard Oil Co. v. United States, 337 U.S. 293, 314 (1949); Thompson 

Everett, Inc. v. Natl Cable Adver., L.P., 57 F.3d 1317, 1326 (4th Cir. 1995) (short-term exclusive contracts upheld where plaintiff failed to advance evidence of substantial anticompetitive 

effect). A single vertical buy-sell arrangement between a supplier and one of 600+ distributors-particularly a distributor who purchased only 3,432 (RX 763) domestic tons out of approximately 36,058 (RX 762) domestic tons and 146,712 (Id.) tons overall--oes not foreclose a 

substantial share of the line of commerce as a matter of law. See Sterling Merch., Inc. v. Nestle, 

s.A., 656 F.3d 112, 123-24 (1st Cir. 2011) ("foreclosure levels are unlikely to be of concern 

where they are less than 30 or 40 percent, and while 
 high numbers do not guarantee success for 

an antitrust claim, low numbers make dismissal easy."). In Sterling Merchandising, the plaintiff. 

ice cream distributor sued a larger, competing distributor alleging that the defendant's exclusivity agreements with local grocery stores injured competition and violated the Sherman and Clayton Acts. Id. at 117. The First Circuit found that the exclusivity agreements did not foreclose a
 

substantial share of the line of commerce because the amount of foreclosure reached only 30.8% 

ofthe relevant market in a single year but otherwise remained below 30%. !d. at 124. Additionally, despite the exclusive dealing arrangements, the plaintiff managed to sell to several of the 

largest retailers and increased its market share during the relevant period. !d. Here, the ALJ did 

not rely on any economic test showing how consumers were harmed by the MDA. Indeed, the 

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ALJ did not even find that Star was harmed by the MDA. Complaint Counsel did not proffer 

any evidence that Star wanted to sell Domestic Fittings to Sigma or that Sigma wanted to purchase Domestic Fittings from Star. The ALl's findings and the undisputed evidence regarding 

the level of foreclosure preclude a finding of substantial foreclosure as a matter of law. See B & 

H Med. L.L.c. v. ABP Admin., Inc., 526 F.3d 257, 262-63, 266-67 (6th Cir. 2008) (foreclosure of 

6.5% of statewide sales and 12.5% of metropolitan sales insuffcient to prove anticompetitive 

effect); Satellte Television & Associated Res., Inc. v. Cont'l Cablevision" 714 F.3d 351, 357 

households insufficient to prove anticompetitive effect). 

The ALl did not find any other unreasonable restraint. For example, he did not find, nor 

could he, that the pricing provisions of the MDA constituted resale price maintenance. The Su­

(4th Cir. 1983) (foreclosure of8% of 


preme Court has held that the rule of reason analysis applied to minimum resale price maintenance claims. Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877,907 (2007). On 

its face, the MDA allowed Sigma to "resell Me Wane Domestic Fittings at any price it deems appropriate." CX 1194. As the Initial Decision correctly found, Sigma was free under the MDA to 

sell individual jobs at any price and it was also free to offer any rebates, cash discounts, freight, 

and payment terms it wanted. F. 1551. The MDA simply suggested an average price for all 

sales in a given quarter: it is the "unilateral policy of Mc Wane not to appoint or continue any 

OEM distributor who resells McWane Domestic Fittings at any price less than 98% of 

McWane's published pricing on a weighted average basis for all customers and items sold during 

any given quarerly period"-the "Suggested Resale Price." CX 1194 (emphasis added). Even 

if Sigma had always followed McWane's Suggested Resale Price, it is well established that such 

a decision is lawfl because a distributor may "independently decide() to observe specified resale 

prices." us. v. Parke, Davis & Co., 362 U.S. 29, 44 (1960); Monsanto Co. v. Spray-Rite Servo
 

36
 
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Corp., 465 U.S. 752, 761 (1984) (manufacturer can announce resale prices in advance and refuse 

to deal with non-complying dealings; distributors can independently decide to acquiesce to such 

prices to avoid termination); Santa Clara Valley Distrib. Co. v. Pabst Brewing Co., 556 F.2d 

942, 945 (9th Cir. 1977) (no coercion where plaintiff testified that dealers felt free not to follow 

suggested prices). Finally, following a suggested resale price does not imply harm to competition (and may, in fact, be pro-competitive). Here, the ALJ did not find any harm to competition 

from the suggestion (and Complaint Counsel did not proffer any economic evidence of any such 

harm). 

C. McWane Did Not Have The Specific Intent To Monopolize 

The ALl's finding that the MDA was motivated by an intent to beat Star is insuffcient to 

establish specific intent to monopolize as a matter of law. Initial Dec. at 232. Put simply, the 

intent to beat competition is not specific intent to monopolize, which requires an intent to injure 

competition and a competitor via the same act. As noted above, the ALJ found that Mc Wane 

lacked intent to overcharge for Domestic Fittings during AR. F. 1086. McWane's intent was 

to put "tons in the plant" and to keep the doors of 
 its remaining domestic foundry open. F. 1590. 

The desire to maintain or increase one's market share is not in itself an antitrust violation. Finally, the Commission cannot infer a conspiracy to monopolize from Sigma's reasoned business 

decision to buy under the MDA rather than embark on the prohibitively expensive and very risky 

effort to virtually manufacture its own domestic fittings-particularly since it was not a viable 

domestic competitor in any reasonable time frame, according to the ALl's own findings. Bell 

Atl. Corp. v. Twombly, 550 U.S. 544, 569 (2007) (holding that a company's failure to expand 

beyond its traditional business and enter a new segment of the market was inconsistent with its 

self-interest and was not suggestive of any anti 
 competitive scheme); In re Baby Food Antitrust 

Litig., 166 F.3d 112, 127 (3d Cir. 1999) (affirming summary judgment for defendants in part be37
 
I 

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cause company's decision not to enter a market was "more plausibly explained as an exercise of 

independent business judgment"). 

IV. MCWANE'S REBATE POLICY AND THE MDA WERE BOTH SHORTTERM IN DURATION AND PRESUMPTIVELY LAWFUL 

Short-term exclusive agreements, particularly those that are one-year or less (or terminable at-wil and on short notice), are presumptively legal because they cannot harm competition. 

See Ticketmaster Corp., v. Tickets. 
 com, Inc. 127 F. App'x. 346, 347-48 (9th Cir. 2005) (attempted monopolization claim failed because a certin percentage of defendant's exclusive contracts came up for renewal each year, permitting competitors to bid); Indeck Energy Servs., Inc., 

v. Consumers Energy Co., 250 F.3d 972, 977-78 (6th Cir. 2000) (no monopolization because 

customers free to investigate alternate suppliers upon expiration of short-term supply agreements); Paddock Publns, Inc. v. Chicago Tribune Co., 103 F.3d 42 (7th Cir. 1996); CDC Techs., 

Inc. v. IDEX Labs., Inc., 186 F.3d 74 (2d Cir. 1999) (one year agreement with 60 day term inabilty clause was not anticompetitive); Roland Mach. Co. v. Dresser Indus., Inc., 749 F.2d 380, 

394 (7th Cir. 1984) ("The exclusion of one or even several competitors, for a short time or even a 

long time, is not ipso facto unreasonable . . . The exclusion of competitors is cause for antitrust 

concern only if it impairs the health of the competitive process itself."). Exclusive dealing 

contracts are only problematic if they are multi-year in length and "foreclose competition in a 

substantial share of the line of commerce affected." As a result, competition to become an 

exclusive supplier "should actually be encouraged." Race Tires Am., Inc. v. Hoosier Racing Tire 

Corp., 614 F.3d 57,83 (3d Cir. 2010). 

Both McWane's rebate policy and the MDA were in effect for less than one year. 

McWane's rebate letter, which was sent to distributors on September 22,2009 with an effective 

date of October 1, 2009, was changed in early 2010 to delete the provision that distributors 

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"may" forego shipments for "up to 12 weeks." F. 1173. Thus, the policy was in place for less 

than six months. F. 1173. The MDA, likewise, lasted less than a year: it was effective on 

October 1, 2009, but McWane invoked the 180-day termination clause in the MDA in early 

2010. Thus, it ended in Fa112010. CX 1194. Thus, both McWane's rebate letter and the MDA 

were presumptively lawful, both on their face and in practical effect. Moreover, even during its 

short life, McWane's rebate letter was short-term on its face: it simply said that customers were 

free to choose another supplier, but "may" forego any unpaid rebates for Domestic Fittings or 

shipments for "up to 12 weeks." F. 1173. 

v. MCW ANE'S REBATE POLICY AND THE MDA HA LEGITIMATE
 

PRO-COMPETITIVE EFFECTS 

The ALJ found that Mc Wane was a more "effcient supplier of domestic Fittings" with 

"lower costs" than Star, which was using "multiple jobber factories, rather than its own, dedicated foundry." Initial Dec. at 411-12. The ALJ found that McWane's Union Foundry was the 

last dedicated domestic foundry, and it was operating at less than a third of its capacity. Id. at 

414; F. 477. Demand for Domestic Fittings had plummeted in recent years as cheap imports 

flooded into the U.S. Long-term Domestic Fittings manufacturers such as Griffin Pipe, u.s. 

Pipe, and ACIPCO had to shut-down. McWane was forced to shut its Tyler South plant, and 

"(r)oughly two hundred employees lost their jobs as a result" of the closure. F.479. 

The ALJ found that McWane's desire for tonnage was not the desire to benefit McWane 

by charging higher prices. It was a desire to keep Union Foundry running (and its people employe~)-which allowed McWane to benefit customers with lower prices than Star (because of 

Union Foundry's lower costs). When confronted with Star's announcement in June 2009 that it 

planned to offer Domestic Fittings, McWane was concerned that it "would not be able to generate enough business to operate its last foundry." Initial Dec. at 416. Specifically, McWane con39
 
PUBLIC
 

cerned that "customers might 'cherr pick' by purchasing the highest-sellng, fastest-moving 

items. . . from Star, while purchasing from McWane only the slower-moving, infrequently-


needed and higher-cost 'c' and 'D' items." Id.; F. 1147, 1175. McWane's September 2009 rebate letter was simply a legitimate pro-competitive effort to "persuade McWane's customers to 

support McWane's full line of Domestic Fittings" in order to keep its Union Foundry-with 

lower costs and lower prices than Star's 
 jobber foundries-open. Initial Dec. at 415. 

The ALJ likewise determined that the MDA between McWane and Sigma had legitimate 

pro-competitive effects and benefitted customers because it also helped Mc W aile to keep its 

lower-cost and more efficient manufacturing option to Star open. F. 1590 (the MDA allowed 

McWane to get "tons in the plant."). As a result of 
 the MDA, customers benefitted from lower 

prices for Domestic Fittings. F. 1086, 1089. The ALJ also found that the MDA benefitted customers because it was Sigma's only viable option for providing its customers with Domestic Fittings during the AR period. F. 1582. Sigma's entry thus benefitted its customers, including 

ACIPCO, Groeniger, E.J. Prescott, and Consolidated Pipe, because they preferred to buy Domestic Fittings from Sigma rather than McWane in part because they believed Sigma provided faster 

delivery due to its larger network of distribution yards and larger sales force. F. 1584, 1586­

1589; JX 659 (Swalley, Dep. 275-276). 

The legitimate procompetitive effects of McWane's rebate letter and MDA prohibit a 

finding against Mc Wane. Courts have routinely recognized that even true exclusive dealing arrangements may have pro 
 competitive effects, including promoting supplier effciency by creating a stable customer base and consistent volume. See Standard Oil, 337 U.S. at 306-307 

("From the seller's point of view, requirements contracts may make possible the substantial reduction of selling expenses."); Stop & Shop Supermarket Co. v. Blue Cross & Blue Shield, 373 

40
 
PUBLIC
 
PUBLIC
 

Further, the ALJ specifically found that Star clearly entered, quickly and successfully, and its 

share of overall Domestic Fittings sales grew steadily month after month and year after year. F. 

1396-97,1134,1140,1143-1144. Star's Vice President testified that the company was on pace 

for its best year yet in 2012. Even if Star had been excluded-and clearly, it was not-there was 

never any injury to competition or consumers because Star was a less effcient, higher cost competitor than McWane-and its prices were thus routinely higher. Because ARR is no longer in 

effect and the ALJ did not find that either the rebate policy or the MDA was ongoing or likely to 

recur, there is nothing to enjoin. 

Under Article III, injunctive relief is only appropriate where the plaintiff shows "that he 

is under threat of suffering 'injury in fact' that is concrete and particularized' and "the threat 

must be actual and imminent, not conjectural or hypothetical(.)" Summers v. Earth Island Inst., 

555 U.S. 488, 493 (2009); Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2559-60 (2011) 

("plaintiffs no longer employed by Wal-Mart lack standing to seek injunctive or declaratory relief against its employment practices"); City of Los Angeles v. Lyons, 461 U.S. 95, 105 (1983) 

(past injury at hands of 
 police did not entitle plaintiff
 to enjoin future police practices). The mere 

possibilty that past conduct might occur again is insuffcient. Winter v. Natural Res. De! Council, Inc., 555 U.S. 7, 22 (2008) (plaintiff seeking injunctive relief required to show likelihood of 

harm); eBay Inc. v. MercExchange, L.L.c., 547 U.S. 388, 391 (2006). The same equitable considerations that govern federal courts should apply to the present action. See United States v. 

Uniroyal, Inc., 300 F. Supp. 84,88 (S.D.N.Y. 1969) (where "the activity of 
 the kind complained 

of by the Governent has ceased" and "no substantial basis has been established by credible 

evidence that there is any danger of recurrent violation ...there is no warrant for injunctive relief."). 

42
 
PUBLIC
 

Under the circumstances presented in the case at hand-wholly past events, no current 

harm and no threat of recurrence-injunctive relief is simply unavailable. 

CONCLUSION 

For the reasons stated herein, the ALl's recommended findings with respect to Counts 4­

7 of the Administrative Complaint should be rejected. 

Dated: June 4, 2013 Respectfully submitted, 

lsi Joseph A. Ostoyich 

Joseph A. Ostoyich 

Erik T. Koons 

Wiliam C. Lavery 

Heather Souder Choi 

BAKR BOTTS LLP 

1299 Pennsylvania Avenue, NW 

Washington, DC 20004-2402 

(202) 639-7700 

J. Alan Truitt 

Thomas W. Thagard III 

MAYNAR COOPER AND GALE PC 

1901 Sixth Avenue North 

2400 Regions Harbert Plaza
 

Birmingham, AL 35203 

(205) 254-1000 

Counsel for Respondent 

McWane, Inc. 

43
 
PUBLIC 

UNITED STATES OF AMERICA
 

BEFORE THE FEDERA TRAE COMMISSION
 

COMMISSIONERS: Edith Ramirez, Chairwoman
 

Julie Bril
 

Maureen Ohlhausen
 

Joshua Wright
 

)
 In the Matter of
 )
 

) PUBLIC
 

MCWANE, INC.,
 )
 a corporation, and
 )
 STAR PIPE PRODUCTS, LTD.,
 )
 a limited partnership. ) DOCKET NO. 9351
 

) 

) 

PROPOSED ORDER 

Upon consideration of the briefs submitted by Respondent and Complaint Counsel, the arguments of counsel for the parties before this Commission in Open Session, and 

the record in this matter, IT is HEREBY ORDERED that: 

1. The Administrative Law Judge's Initial Decision with respect to 

Counts 4-7 of the Administrative Complaint was premised on erroneous findings of fact and conclusions of law, and is therefore vacated. 

2. Counts 1-7 of the Administrative Complaint have not been proven by
 

a preponderance of the evidence, and are dismissed. 

ORDERED: 

The Commission 

,2013 

44
 
PUBLIC
 

CERTIFICATE OF SERVICE 

I hereby certify that on June 4, 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, Rm. H-l13
 

Washington, DC 20580
 

I also certify that I delivered via 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: 

Edward Hassi, Esq.
 

Geoffrey M. Green, Esq.
 

Linda Holleran, Esq.
 

Thomas H. Brock, Esq.
 

Michael L. Bloom, Esq.
 

Jeanine K. Balbach, Esq.
 

J. Alexander Ansaldo, Esq.
 

Andrew K. Mann, Esq.
 

By: lsI Wiliam C. Lavery
 

Willam C. Lavery 

Counsel for Mc Wane, Inc. 

45