PROVISIONALLY REDACTED PUBLIC VERSION

 UNITED STATES OF AMERICA

BEFORE THE FEDERAL TRADE COMMISSION

COMMISSIONERS: Edith Ramirez, Chairwoman 

 Julie Brill

 Maureen K. Ohlhausen

 Joshua D. Wright 

In the Matter of 

MCWANE, INC., 

 a corporation, and Docket No. 9351 

STAR PIPE PRODUCTS, LTD. 

 a limited partnership.

OPINION OF THE COMMISSION

By Chairwoman Edith Ramirez, 

I. INTRODUCTION

In this decision we address alleged anticompetitive conduct by respondent McWane, Inc. 

in the ductile iron pipe fittings industry. Pipe fittings join together pipes and help direct the flow 

of pressurized water in pipeline systems. They are sold to municipal and regional water 

authorities and their contractors for waterworks projects, and are distributed mainly through 

independent wholesalers. 

The U.S. market for the sale of small and medium diameter ductile iron pipe fittings 

(hereafter “fittings”) is an oligopoly. Three firms—McWane, Star Pipe Products, Ltd., and 

Sigma Corporation—account for over 90% of fittings sales in the United States. McWane is the 

industry leader with a market share of about 45-50%; Sigma and Star are second and third, 

respectively, with shares of roughly 30% and 20%. IDF 355-56. 

Complaint Counsel alleges that McWane engaged in unlawful collusion, information 

exchange, and exclusionary conduct. The first three counts of the Complaint relate to an alleged 

McWane-led conspiracy to raise and stabilize fittings prices in 2008. According to Complaint 

Counsel, McWane, Sigma, and Star conspired to curtail “project pricing,” a form of discounting 

that is the main form of price competition in the industry. Counts 4 through 7 focus on alleged 

efforts by McWane in 2009 to maintain its monopoly in the market for domesticallymanufactured fittings. In particular, Complaint Counsel charges that McWane entered into a 

Master Distribution Agreement (the “MDA”) with Sigma to prevent Sigma from becoming an 

independent competitor in domestic fittings and imposed an exclusive dealing policy on its 

distributors to stop Star from becoming a viable rival. The Administrative Law Judge (“ALJ”) 
PROVISIONALLY REDACTED PUBLIC VERSION

2 

found that Complaint Counsel failed to establish liability on Counts 1 through 3 but held 

McWane liable on Counts 4 through 7. Both McWane and Complaint Counsel have appealed.

1

On de novo review, we affirm the ALJ and find McWane liable on Count 6 for 

unlawfully maintaining its monopoly in the domestic fittings market. We dismiss all of the 

remaining counts. Specifically, two Commissioners find that Counts 1 and 2 alleging an 

unlawful conspiracy and information exchange have been proven and two Commissioners do 

not. In the absence of a majority decision, we dismiss these counts in the public interest. We 

reverse the ALJ on Count 4 and conclude that Complaint Counsel failed to establish that the 

distribution relationship under the MDA between Sigma and McWane was unlawful. In light of 

our conclusions on Counts 4 and 6, we find it unnecessary to reach Count 5, alleging that 

McWane and Sigma conspired to monopolize the domestic fittings market through their 

distribution agreement, and Count 7, alleging that McWane’s exclusive dealing policy 

constituted attempted monopolization of the domestic fittings market. 

Having found liability on Count 6, we enter an order remedying McWane’s exclusionary 

conduct and imposing certain fencing-in requirements designed to prevent the unlawful conduct 

from recurring.2

 

II. PROCEDURAL HISTORY

A. THE ALLEGATIONS

On January 4, 2012, the Commission issued a seven-count administrative complaint 

against McWane and Star after Sigma had separately entered into a consent agreement with the 

Commission. Later, on May 12, 2012, Star also entered into a consent agreement, and McWane 

remained the only respondent in the case. 

 

1

 Of the counts dismissed by the ALJ, Complaint Counsel appealed Counts 1 and 2, but not Count 3, 

which alleged that McWane invited Sigma and Star to collude to fix prices. McWane appealed all four 

counts on which the ALJ found liability. 

2 This opinion uses the following abbreviations for citations to the record: 

ID: Initial Decision of the Administrative Law Judge 

IDF: Numbered Findings of Fact in the ALJ’s Initial Decision 

CX: Complaint Counsel’s Exhibit 

CCAppB: Complaint Counsel’s Appeal Brief 

CCAnsB: Complaint Counsel’s Answering Brief to Respondent’s Appeal Brief 

CCRB: Complaint Counsel’s Reply Brief 

RX: Respondent’s Exhibit 

Tr.: Transcript of Trial before the ALJ

JSLF: Joint Stipulations of Law and Fact

RAppB: Respondent’s Appeal Brief 

RAnsB: Respondent’s Answering Brief to Complaint Counsel’s Appeal Brief 
PROVISIONALLY REDACTED PUBLIC VERSION

3 

Count 1 of the Complaint charges a violation of Section 5 of the Federal Trade 

Commission Act, 15 U.S.C. § 45, focusing on two rounds of price increases in the fittings 

market, the first in January 2008 and the second in June 2008. With respect to the January 

increase, the Complaint alleges that McWane devised a plan to trade its support for higher list 

prices in exchange for Sigma’s and Star’s curtailment of “project pricing”; that McWane 

communicated the terms of its plan to Sigma and Star; and that “Sigma and Star manifested their 

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

discounting from published price levels.” Complaint ¶¶ 31-32, 64. The Complaint further 

alleges, with respect to the June price increase, that McWane traded its support for higher prices 

in exchange for monthly shipment information from Sigma and Star disseminated through their

industry association, the Ductile Iron Fittings Research Association (“DIFRA”). Id. ¶¶ 33-34. 

Count 2 alleges that McWane’s agreement to exchange information through DIFRA 

facilitated collusion and is therefore an independent violation of Section 5. In particular, the 

Complaint asserts that the exchange of aggregated data regarding the firms’ fittings shipments, 

including shipment information typically no more than two months old, “enabled each of the 

Sellers to determine and to monitor its own market share and, indirectly, the output levels of its 

rivals,” and “[i]n this way, . . . facilitated price coordination among the Sellers on the pricing of 

[fittings].” Id. ¶¶ 35-36. 

The remaining counts relate to the domestic fittings market. McWane, as the only major 

supplier with domestic production capability, is alleged to be a monopolist in that market. The 

Complaint alleges that the February 2009 enactment of the American Recovery and 

Reinvestment Act of 2009 (“ARRA”), which conditioned funding on the use of domesticallyproduced fittings, “significantly altered the competitive dynamics of the [fittings] industry, and 

upset the terms of coordination” among McWane, Sigma, and Star by spurring Sigma and Star to 

seek to enter the domestic fittings market. Id. ¶¶ 3, 18, 44. Counts 4 through 7 are based on 

McWane’s alleged efforts to exclude competitors from this market. 

Count 4 charges that McWane entered into the MDA with Sigma to prevent Sigma from 

becoming an independent competitor in the domestic fittings market, and therefore that the MDA

unreasonably restrains trade. Id. ¶¶ 48, 67. Count 5 alleges that McWane and Sigma entered 

into the MDA to monopolize the domestic fittings market and exclude their rivals. Id. ¶ 68. In 

Counts 6 and 7, the Complaint alleges that McWane adopted a restrictive and exclusive 

distribution policy to impede or delay the ability of Star and others to enter the domestic fittings

market. Id. ¶¶ 57, 61. Count 6 charges McWane with monopolization, and Count 7 alleges that 

McWane engaged in attempted monopolization. Id. ¶¶ 69-70. 

In its Answer, McWane denied all of the substantive allegations of the Complaint. 

B. SUMMARY DECISION MOTIONS AND TRIAL

In August 2012, both parties moved for summary decision. McWane sought summary 

decision on all counts. Complaint Counsel sought summary decision on one episode of alleged 

price-fixing involving McWane and Star in the Spring of 2009. The Commission denied both 

motions, concluding that a trial was necessary to resolve disputed issues of fact. In re McWane, 

Inc. & Star Pipe Prods., Ltd., Docket No. 9351, Order and Decision Denying Respondent’s 
PROVISIONALLY REDACTED PUBLIC VERSION

4 

Motion for Summary Decision and Complaint Counsel’s Motion for Partial Summary Decision, 

August 9, 2012. 

The evidentiary hearing before Administrative Law Judge D. Michael Chappell 

commenced on September 4 and concluded on November 2, 2012. Complaint Counsel called 15 

fact witnesses, including executives from McWane, Star, and Sigma, and an economic expert, 

Dr. Laurence Schumann. McWane called one witness, economic expert Dr. Parker Normann. 

C. THE INITIAL DECISION

On May 1, 2013, the ALJ issued a 464-page opinion. He dismissed the first three counts 

relating to the alleged price conspiracy, concluding that Complaint Counsel had failed to 

establish liability by a preponderance of the evidence. He explained that “Complaint Counsel’s 

conspiracy theory is not implausible; it is indeed ‘possible’ that there is some truth in the story 

Complaint Counsel tells.” ID at 351. However, he found that, “[w]hen fairly and objectively 

scrutinized and weighed, the evidence fails to prove that McWane conspired with Sigma and Star 

to raise and stabilize prices in the Fittings market.” Id. “At best,” he concluded, “the evidence 

shows interdependent or consciously parallel conduct, unaided by an agreement, which is not 

illegal.” Id. 

With respect to Count 2, the ALJ found that the agreement by McWane, Star, and Sigma 

to participate in the DIFRA information exchange was not an unlawful facilitating practice. He 

reasoned that while Complaint Counsel had shown that the fittings market was an oligopoly 

susceptible to tacit coordination, the nature of the information exchanged—aggregated, historic 

shipment volumes—was insufficiently specific and not the type of information, like pricingrelated data, that can facilitate price coordination. ID at 352-62. 

The ALJ ruled in favor of Complaint Counsel with respect to Counts 4 through 7. On

Count 4, the ALJ found that by entering into the MDA with Sigma, McWane had unreasonably 

restrained trade in the domestic fittings market. The ALJ focused on the provisions of the MDA 

that barred Sigma from producing its own domestic fittings and required Sigma to charge prices 

close to those charged by McWane. He concluded that, although the evidence failed to show that 

Sigma was a potential competitor in the domestic fittings market, the availability of reasonable, 

less restrictive alternatives and the absence of any valid procompetitive justifications rendered

the MDA unlawful under the rule of reason. ID at 433-37. The ALJ also determined that, 

through the MDA, McWane had conspired with Sigma to monopolize the domestic fittings 

market, as alleged in Count 5. ID at 445. As to Count 6, he found that sales requiring domestic 

fittings constituted a separate product market in which McWane held monopoly power. He ruled 

that McWane’s so-called “Full Support Program” was an exclusive dealing arrangement that 

foreclosed Star from a substantial share of the domestic fittings market and thereby unlawfully 

maintained McWane’s monopoly. The ALJ also found that this conduct amounted to attempted 

monopolization of the domestic fittings market, as alleged in Count 7. ID at 419. 

On May 13, 2013, the parties filed timely notices of appeal. Complaint Counsel appeals 

the ALJ’s ruling with respect to Counts 1 and 2, and McWane appeals his findings on Counts 4 

through 7. 
PROVISIONALLY REDACTED PUBLIC VERSION

5 

FACTUAL BACKGROUND3 III.

A. THE DUCTILE IRON PIPE FITTINGS INDUSTRY

Fittings are small but essential components of pressurized water distribution and 

treatment systems. They are used to join pipes, valves and hydrants, and to change, direct or 

divide the flow of water. IDF 5, 278. Although there are several thousand unique configurations 

of fittings in different shapes, sizes and coatings, approximately 80% of the demand may be 

serviced with only about 100 commonly-used fittings. IDF 286, 306. 

Fittings are commodity products produced to American Water Works Association 

(“AWWA”) standards and can be made anywhere in the world. Any fitting that meets AWWA 

specifications is functionally interchangeable with other fittings made to that standard, regardless 

of the country of origin. IDF 322-23. Despite the commodity nature of these fittings, however, 

some waterworks projects are closed to bids that include fittings made outside of the United 

States. IDF 346. A “domestic” or “domestic-only” specification or project requires fittings 

manufactured in the United States because of either end-user preferences or legal procurement 

requirements. IDF 347-48, 519-23. Projects that do not require domestic fittings are referred to 

as “open specification” projects. IDF 349. Domestic fittings sold for use in projects with 

domestic-only specifications generally command substantially higher prices than imported 

fittings or domestic fittings sold for use in projects with open specifications. IDF 547, 1075-76. 

A few decades ago, most fittings were manufactured in the United States, and there were 

a number of full-line domestic fittings manufacturers, including U.S. Pipe and Foundry Co. 

(“U.S. Pipe”), Griffin Pipe Products Co., and American Cast Iron Pipe Co. (“ACIPCO”), as well 

as McWane. IDF 462. However, in the mid-1980s, importers, including Star and Sigma, began 

to make significant inroads, and, by 2005, imported fittings made up the vast majority of sales. 

IDF 463, 465-67. Faced with competition from lower-cost and lower-priced imports, several

domestic manufacturers, including U.S. Pipe, Griffin, and ACIPCO, dramatically reduced or 

ceased domestic fittings production. IDF 472-76. From April 2006 until Star entered the 

domestic fittings market in late 2009, McWane was the only significant supplier of domestic 

fittings. IDF 1040. 

B. FITTINGS INDUSTRY SUPPLIERS

1. McWane

McWane manufactures, imports, and sells various products for the waterworks industry, 

including fittings, which account for about 5% of McWane’s business. Its principal place of 

business is in Birmingham, Alabama. IDF 1-2, 13. Until November 2008 McWane produced 

fittings at two foundries, one in Anniston, Alabama, and the other in Tyler, Texas. IDF 15. In 

2005, it also began producing fittings in China, and in 2007 it consolidated its fittings business 

 

3 Because there is no majority position with respect to Counts 1 and 2, the facts described herein are 

limited to those relevant to Counts 4 through 7. 
PROVISIONALLY REDACTED PUBLIC VERSION

6 

into a single division, Tyler/Union. IDF 17. Faced with high levels of inventory and low 

demand, McWane closed the Tyler, Texas foundry in November 2008. IDF 18. 

The key McWane employee for purposes of this case is Mr. Richard Tatman, who joined 

the company in May 2006 and became Vice President and General Manager in charge of 

Tyler/Union in 2007. IDF 20-27. 

2. Sigma

Based in Cream Ridge, New Jersey, Sigma has imported and sold a range of waterworks 

products, including fittings, in the United States since roughly 1985. IDF 51. Sigma sells to 

distributors and original equipment manufacturers, making it both a competitor and supplier to 

McWane. IDF 59-60. Fittings are Sigma’s primary product line, accounting for 40-45% of its 

revenues in 2008 and 2009. IDF 52. Unlike McWane, Sigma has no production facilities. It 

uses a “virtual manufacturing” model, providing technical know-how and quality control but 

relying on foundries in China, Mexico, and India for the manufacture of its fittings. IDF 57. 

The Sigma employees most relevant here include Victor Pais, one of Sigma’s founders 

and its CEO and President (IDF 64-69), and Mitchell Rona, Sigma’s OEM business manager 

(IDF 82).

3. Star

Star also imports and sells fittings and a variety of other waterworks products. IDF 108. 

It was founded in 1981 and has sold fittings since approximately 1985. IDF 109. Like Sigma, 

fittings are Star’s primary product line, accounting for about 50% of Star’s total sales. IDF 111. 

It sources its fittings primarily from foundries in China. IDF 113. However, beginning in 2009, 

Star contracted with a number of U.S. foundries to produce domestic fittings in competition with 

McWane. IDF 112. 

4. Others 

There are also a number of pipe and other companies that manufacture or sell certain 

types and sizes of fittings as ancillary product lines, but none is a significant supplier. IDF 154-

57, 161-62, 164-67, 169-73, 176-81, 186-88, 190-93, 196-99. 
 

 
PROVISIONALLY REDACTED PUBLIC VERSION

8

required to use domestically manufactured fittings and to be “under contract or under 

construction” within 12 months of ARRA’s enactment.4

 IDF 525-27. 

Given the anticipated increase in domestic fittings demand due to ARRA funding, both 

Star and Sigma began exploring options to enter the market. IDF 1094, 1421. In June 2009, Star 

sent a letter to customers and publicly announced at an AWWA industry conference that it would 

offer domestic fittings starting in September 2009. IDF 1095-96. Sigma initially considered two 

approaches for entering the domestic fittings market—purchasing Sigma-branded fittings 

manufactured by McWane or producing domestic fittings by contracting with independent 

domestic foundries. IDF 1423. In April 2009, Sigma contacted McWane to ask that it supply 

Sigma with “private label” domestic fittings, advising McWane that Sigma would pursue its own 

domestic production if McWane did not supply it with domestic fittings. IDF 1425-26.

The possible entry of Star and Sigma into the domestic fittings market created significant 

concerns for McWane. Not surprisingly, McWane did not want to share domestic sales and 

worried that entry by Star and Sigma would threaten to undermine its domestic fittings prices. 

IDF 1148-49, 1151-53. 

2. Development of McWane’s Full Support Program

By May 2009, the Vice President and General Manager in charge of McWane’s fittings 

business, Mr. Tatman, was developing McWane’s strategic response to possible domestic entry. 

He noted in a May 26 “brainstorming” document that any competitor seeking to enter the 

domestic fittings market could face “significant blocking issues” if they lacked a full line of 

domestic fittings. IDF 1155. A few weeks later, in a June e-mail exchange with other McWane 

executives about how to deal with entry, Mr. Tatman laid out his strategic vision for protecting

McWane. He wrote: 

[A]t this stage the chance for profitable cohabitation with Star 

owning a [piece] of the Domestic market is slim. . . . If their 

claims are ahead of their actual capabilities we need to make sure 

that they don’t reach any critical market mass that will allow them 

to continue to invest and receive a profitable return. . . . I don’t 

sense that Sigma is yet fully committed and they will be watching 

our response very closely to assess their strategy and probability of 

financial success.

IDF 1150. 

 4 During the distribution of funds provided by ARRA, the Environmental Protection Agency granted 

certain waivers of the “Buy American” requirement. IDF 530-46. These included public interest waivers, 

cost waivers if using domestic materials resulted in an overall cost increase of more than 25%, and 

waivers when domestic materials were unavailable in adequate quantities. IDF 531-33.
PROVISIONALLY REDACTED PUBLIC VERSION

9 

As of late June, Mr. Tatman had developed three potential options for McWane’s 

response to domestic entry: “Wait and See”; “Handle on a Job by Job basis”; or “Force 

Distribution to Pick their Horse.” CX0076 at 009. He explained the advantages of the third 

approach: (1) “Avoids the job by job auction scenario within a particular distributor”; 

(2) “Potentially raises the level of supply concern among contractors”; and (3) “Forces 

Star/Sigma to absorb the costs associated with having a more full line before they can secure 

major distribution[.]” Id. When considering how to implement such a program, Mr. Tatman 

outlined a “Soft Approach” in which a “Domestic rebate would require exclusivity,” and a “Hard 

Approach – Full Line or No Line,” whereby access to McWane’s domestic fittings would 

“require[] exclusivity for Domestic fitting items we manufacture.” Id. at 010. 

By August, McWane had determined to implement an exclusive dealing requirement for 

distributors. Mr. Tatman explained the plan: “To protect our domestic brands and market 

position we are going to adopt a distributor exclusivity program for 2010 wherein we won’t 

provide domestic product to distributors who are not fully supporting our domestic product 

lines.” CX0113 at 001. McWane’s management emphasized to its sales staff that the “new 

policy” meant that “if a customer buys Star domestic . . . the customer will no longer have access 

to [McWane] domestic [fittings].” IDF 1179. 

3. McWane Announces and Implements the “Full Support Program” 

McWane announced its exclusive dealing policy, called the “Full Support Program,” in a 

September 22, 2009 letter to distributors. IDF 1173. McWane’s executives and sales force 

proceeded to contact customers to discuss the program, explaining it would be applied to them 

on a “company-wide basis”—if one branch purchased domestic fittings from Star, “all branches 

would be cut off.” IDF 1180-82. There were only two exceptions permitting the purchase of 

another company’s domestic fittings: where McWane products were not readily available or 

where the customer bought domestic fittings and accessories along with another manufacturer’s 

ductile iron pipe. IDF 1173. 

The message was received, and nearly all customers believed they would lose rebates or 

be cut off from purchasing McWane’s domestic fittings if any branch bought domestic fittings

from Star. IDF 1184-85, 1188-89, 1191-92, 1300. As a consequence, unless an exception 

applied, major distributors purchased only from McWane. See IDF 1231-51, 1259-64, 1299-

1304, 1334-40, 1313-18, 1353-58, 1364. 

McWane’s enforcement of the Full Support Program was consistent with what it had 

described to customers. Distributor Hajoca Corporation provides one example. Because 

Hajoca’s branches operated independently, Hajoca asked McWane to modify the Full Support 

Program so that not all Hajoca branches would be penalized if one branch bought from Star. 

McWane refused. IDF 1197-1202. Later, when Hajoca’s Tulsa branch purchased Star domestic 

fittings, McWane cut off sales of its domestic fittings to all Hajoca branches, including branches 

that had complied with the program. IDF 1206-13. As a result, Hajoca was unable to place any 

new domestic fittings orders with McWane between December 4, 2009, and April 13, 2010 

PROVISIONALLY REDACTED PUBLIC VERSION 

11 

fitting, sometimes as much as %. IDF 1410, 1411, in camera, 1412-13. Star believed its 

sales level was insufficient to justify running its own foundry. IDF 1400-01. 

In the end, because it could not expand its sales more quickly, rather than acquiring a 

foundry, Star contracted with six foundries to produce raw castings, which Star then shipped to 

its Houston facility for finishing. IDF 1409. Shipping costs alone to Star’s Houston finishing 

facility added % to the cost of Star’s domestic fittings. IDF 1411, in camera. Star estimated 

that the cost of producing fittings at its own domestic foundry would have been % lower 

than the cost of contracting with independent foundries, and that it could have reduced its 

domestic fittings prices by %. IDF 1419-20, in camera. 

5. Sigma’s Efforts to Enter the Domestic Fittings Market 

In April 2009, at the same time as it was developing its exclusive dealing policy, 

McWane was also responding to a request from Sigma that McWane supply Sigma with “private 

label” domestic fittings. IDF 1425, 1429. McWane’s Mr. Tatman recognized that if McWane 

did not sell to Sigma, McWane would retain the full margin for its domestic fittings sales, but 

also realized that by selling to Sigma it could “eliminate the probability” that Sigma would find 

another domestic fittings source. IDF 1431-39, 1442. 

On June 5, McWane made an initial offer to sell domestic fittings to Sigma at 5% off 

McWane’s published prices. IDF 1443. Sigma rejected that offer because it did not allow 

sufficient margin to cover its operating costs. IDF 1444-45. Sigma then informed McWane that 

it planned to develop its own domestic fittings capability. IDF 1509-10. 

While negotiating with McWane, Sigma tasked a team of executives to investigate the 

possibility of entering the domestic fittings market using independent foundries. IDF 1446-47. 

The team held planning meetings that resulted in detailed action plans. IDF 1454. When Sigma 

rejected McWane’s June 5 offer, Sigma’s president stated in an update to the Board, “We now 

need to go all out and implement a [domestic] plan - replicating SIGMA’s ‘virtual 

manufacturing’ model working with a collection of domestic foundries who have ample idle 

capacity, to produce the range of Fittings, just as we do thru a collection of facilities overseas.” 

IDF 1455. By June, Sigma’s team had begun to take steps to implement a virtual model. They 

obtained patterns, arranged foundry site visits, placed orders for foam patterns and other 

equipment, and produced two large sample domestic fittings as trial runs at a foundry in 

Tennessee. IDF 1457-61. All told, Sigma spent between $50,000 and $75,000 investigating 

domestic production options. IDF 1449. 

As of July 11, Sigma was still pursuing its plan to produce domestic fittings, but it was 

proceeding more “deliberately and thoughtfully” because it was finding the plan difficult to 

implement. IDF 1463. Sigma was also in a financially precarious situation and had limited 

access to capital. IDF 1483, 1487, 1499. At that point, Sigma had no domestic foundries, no 

contracts with existing domestic foundries, no core boxes, no machining facilities, and no 

finishing facilities or contracts for coating, painting, and lining, for domestic fittings. IDF 1465. 

In September, Sigma still had very few of the patterns it would need to make domestic 

fittings, did not have any contracts with any pattern shops to build the necessary patterns, and did 
PROVISIONALLY REDACTED PUBLIC VERSION

12 

not have any contracts with any domestic foundries to produce fittings. IDF 1470-73. 

Ultimately, Sigma decided against producing its own domestic fittings. IDF 1545. Mr. Pais of 

Sigma informed the Board that “the entire project was found to be too overwhelming and 

cumbersome” and would have required “a sizeable Capital Expenditure.” IDF 1474. 

6. McWane and Sigma Enter Into the Master Distribution Agreement

In late June or early July 2009, Mr. Rona of Sigma resumed discussions with McWane. 

IDF 1522. On July 29, McWane offered to sell McWane-branded domestic fittings to Sigma at a 

20% discount off published multipliers, but required that McWane be Sigma’s sole source of 

domestic fittings (other than for fittings that McWane did not produce or could not ship 

promptly). IDF 1529; CX1805 at 002. The offer also required Sigma to agree to sell the 

McWane fittings only to distributors that had an exclusive supply relationship with McWane. 

IDF 1529. 

Negotiations continued through August and September. On September 17, McWane and 

Sigma signed the MDA. IDF 1537. Under the agreement, Sigma agreed to act as an authorized 

distributor of McWane’s domestic fittings on the following key terms: (1) McWane would be 

Sigma’s sole domestic fittings source, unless certain limited exceptions applied; (2) Sigma could 

resell McWane’s fittings at any price, but McWane could cancel the agreement if Sigma’s price 

was less than 98% of McWane’s published pricing on a weighted average basis; (3) Sigma could 

resell only to customers that agreed to purchase McWane domestic fittings exclusively; and (4) 

there would be an initial term of one year, but either party could terminate the agreement with or 

without cause by giving 180 days’ advance written notice. CX1194 at 001-002, 007. McWane 

announced the MDA to customers in the same September 22, 2009 letter that announced the Full 

Support Program. CX0010. 

Sigma’s subsequent actions were consistent with the MDA. It ceased efforts to develop 

its own domestic manufacturing capability. IDF 1543-47. Sigma also priced domestic fittings as 

prescribed by the MDA and implemented McWane’s exclusive dealing program. IDF 1548-53, 

1566-74. Additionally, when McWane cut off the supply of domestic fittings to Hajoca, Sigma 

followed suit. See IDF 1568-70. 

On February 17, 2010, McWane provided Sigma with 180 days’ notice that McWane 

wished to terminate the MDA. IDF 1595. In all, the MDA was in effect from September 2009 

to August 2010. IDF 1596. 

IV. STANDARD OF REVIEW 

The Commission reviews the ALJ’s findings of facts and conclusions of law de novo, 

considering “such parts of the record as are cited or as may be necessary to resolve the issues 

presented.” 16 C.F.R. § 3.54. The Commission may “exercise all the powers which it could 

have exercised if it had made the initial decision.” Id. The de novo standard of review applies to 

both findings of fact and inferences drawn from those facts. See Realcomp II, Ltd., No. 9320, 

2009 FTC LEXIS 250 at *37 n.11 (Oct. 30, 2009), aff’d, Realcomp II, Ltd. v. FTC, 635 F.3d 815 

(6th Cir. 2011). 
PROVISIONALLY REDACTED PUBLIC VERSION

13 

V. MCWANE’S EXCLUSIVE DEALING POLICY AS MONOPOLY 

MAINTENANCE

Complaint Counsel alleges that McWane adopted an exclusionary distribution policy in 

order to maintain its monopoly in the domestic fittings market in violation of Section 5 of the 

FTC Act.

7

 A claim of monopolization requires proof of “(1) the possession of monopoly power 

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

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

acumen, or historic accident.” United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966). As 

the Supreme Court underscored in Spectrum Sports, Inc. v. McQuillan, “[t]he law directs itself 

not against conduct which is competitive, even severely so, but against conduct which unfairly 

tends to destroy competition itself.” 506 U.S. 447, 458 (1993). Accordingly, the Commission 

must first determine whether McWane has monopoly power in a relevant market, and, if it does, 

whether McWane acted to maintain its monopoly through anticompetitive conduct. United 

States v. Microsoft, 253 F.3d 34, 79 (D.C. Cir. 2001). As discussed below, we answer both 

questions in the affirmative and conclude that McWane unlawfully maintained its monopoly of 

the domestic fittings market. 

A. MONOPOLY POWER

A monopolist is defined as a firm that can “profitably raise prices substantially above the 

competitive level.” Microsoft, 253 F.3d at 51. Monopoly power can be shown directly, through 

evidence of the defendant’s control over prices or its ability to exclude competition from the 

market, or indirectly, by examining market structure and a firm’s market share. See Grinnell 

Corp., 384 U.S. at 571. Because direct evidence of monopoly power is often unavailable, courts 

have traditionally inferred it from “a firm’s possession of a dominant share of a relevant market 

that is protected by entry barriers.” Microsoft, 253 F.3d at 51. We start by addressing the 

relevant market and then turn to whether McWane has monopoly power in that market. 

1. Domestic Fittings Sold for Use in Projects with Domestic-Only 

Specifications Are a Relevant Market

A relevant product market consists of “products that have reasonable interchangeability 

for the purposes for which they are produced.” United States v. E. I. duPont de Nemours & Co., 

351 U.S. 377, 404 (1956). Courts typically evaluate the reasonable interchangeability of use and 

the cross elasticity of demand in assessing a potential relevant market, focusing on “the 

availability of products that are similar in character or use to the product in question and the 

degree to which buyers are willing to substitute those similar products for the product.” FTC v. 

Swedish Match, 131 F. Supp. 2d 151, 157 (D.D.C. 2000). 

 

7

 Violations of the Sherman Act also constitute “unfair methods of competition” under Section 5 of the 

FTC Act. See California Dental Ass’n v. FTC, 526 U.S. 756, 762 & n.3 (1999); FTC v. Motion Picture 

Adver. Serv. Co., 344 U.S. 392, 394-95 (1953). Accordingly, we rely on case law and other authority 

applying the Sherman Act for our analysis of the relevant claims.
PROVISIONALLY REDACTED PUBLIC VERSION 

14 

We agree with the ALJ that there are two relevant product markets in this case. One is 

comprised of small and medium (i.e., 24 inches and smaller) diameter ductile iron pipe fittings 

sold in the United States for use in open specification waterworks projects (the “fittings 

market”). See ID at 244, 252-53, 450. There are no reasonable substitutes for ductile iron pipe 

fittings. The closest substitute is made from polyvinyl chloride (“PVC”), but because PVC 

fittings lack the strength of ductile iron pipe fittings and thus are not suitable for high pressure 

applications, the two are not reasonably interchangeable. ID at 246-47. We also find that it is 

appropriate to group all ductile iron pipe fittings 24 inches and smaller in diameter into a single 

product market for the purpose of evaluating competitive effects. See ID at 244-46 (explaining 

“cluster” markets); United States v. Philadelphia Nat’l Bank, 374 U.S. 321, 356 (1963) (finding 

that a cluster of products and services comprising “commercial banking” was a relevant market); 

In re ProMedica Health Sys., Inc., 2012 FTC LEXIS 58, at *48-55, *62-72 (Mar. 28, 2012) 

(describing conditions that make it appropriate to delineate cluster markets). Domesticallymanufactured and imported fittings are both used in open specification jobs and are therefore 

both included in the fittings market. This relevant market is not in dispute. 

We also find there is a separate relevant market for the supply of domesticallymanufactured fittings for use in waterworks projects with domestic-only specifications (the 

“domestic fittings market”). This is the market that McWane contests. 

Product markets are sometimes defined by considering whether a hypothetical 

monopolist could profitably target a particular subset of customers for price increases. Where 

existing buyers differ significantly in their likelihood of switching to other products in response 

to a small but significant and nontransitory increase in price, and a hypothetical monopolist can 

identify and price differently to targeted buyers that cannot defeat the price increase by 

substituting other products, there is a “price discrimination” market. In such a case, the 

hypothetical monopolist would profitably impose a discriminatory price increase on sales to the 

targeted buyers, and those buyers would define the boundaries of the relevant market. See Dep’t 

of Justice and Fed. Trade Comm’n, Horizontal Merger Guidelines § 4.1.4 (2010) (“Horizontal 

Merger Guidelines”); Phillip E. Areeda, Herbert Hovenkamp & John L. Solow, IIB Antitrust 

Law ¶ 534d.1, at 269 (3d ed. 2007) (“Successful price discrimination means that the disfavored 

geographic or product class is insulated from the favored class and, if the discrimination is of 

sufficient magnitude, should be counted as a separate relevant market.”). 

The supply of domestic fittings constitutes a price discrimination market. Certain 

waterworks projects require domestic-only fittings because of municipal, state, or federal law, or, 

sometimes, end-user preferences. IDF 347, 519; JX0001 at 002 (JSLF ¶ 13). For example, 

Pennsylvania and New Jersey both have “Buy American” laws governing fittings. IDF 348, 520-

21. Certain federal government projects, Air Force bases, and municipalities also require 

domestic fittings. IDF 348, 519-23. Similarly, ARRA contained Buy American provisions 

requiring domestic fittings in the $6 billion worth of waterworks projects it funded. IDF 524-29. 

When a project requires domestic fittings, a distributor will not purchase imported fittings even 

though they have the same form and functionality. IDF 350, 549. Imported fittings therefore are 

not interchangeable with, or reasonable substitutes for, projects with domestic procurement 

specifications. 
PROVISIONALLY REDACTED PUBLIC VERSION

15 

McWane capitalizes on this lack of interchangeability by charging higher prices for 

domestic fittings used in domestic-only waterworks projects. Answer ¶ 20; IDF 350-51. For 

instance, McWane’s February 2008 price multipliers for domestic fittings sold into domesticonly specifications were substantially higher than its “blended” multipliers for domestically 

manufactured and imported fittings sold into open specifications, with the price differential

ranging from 21.4% to 96%. IDF 1076. Indeed, due to the price differential between fittings 

sold into open and domestic-only specifications, McWane does not provide quotes for domestic 

fittings for open specification projects. IDF 548. Importantly, the price difference reflects

McWane’s ability to target particular customers based on project specifications, not a difference 

in the cost of production, which is the same for all domestically manufactured fittings. 

These targeted price differences confirm that domestic fittings for use in projects with 

domestic-only specifications are a separate product market. Job specifications readily identify 

customers susceptible to discriminatory pricing and the persistence of distinct price levels shows 

that customers cannot use arbitrage to avoid the higher prices. See Geneva Pharms. v. Barr Labs 

Inc., 386 F.3d 485, 496-98 (2d Cir. 2004) (finding that branded and generic versions of a drug, 

though “therapeutically equivalent,” were in separate antitrust markets when users of the branded 

drug exhibited inelastic demand that was unresponsive to the lower prices of generic versions). 

Additionally, because customers can turn only to domestic producers in this relevant product 

market, the relevant geographic market is the United States. ID at 252-53. 

McWane raises several arguments to dispute a domestic fittings market. None is 

persuasive. As an initial matter, it claims that econometric evidence is necessary to establish a 

product market and argues that the absence of such evidence here undermines a conclusion that a 

separate domestic fittings market exists. That is simply incorrect. Econometric analysis can be a 

valuable tool for defining a market, but it is only one of several that may be used for that 

purpose. Courts routinely rely on qualitative economic evidence to define relevant markets. See, 

e.g., Brown Shoe Co. v. United States, 370 U.S. 294, 325 (1962) (recognizing that “practical 

indicia” such as industry or public recognition and a product’s unique attributes can be used to 

define a relevant market); Spirit Airlines, Inc. v. Northwest Airlines, Inc., 431 F.3d 917, 934-35 

(6th Cir. 2005) (relying on party documents and fact and expert testimony to determine the 

relevant product market); United States v. H&R Block, Inc., 833 F. Supp. 2d 36, 50-71 (D.D.C. 

2011) (finding digital do-it-yourself tax preparation software a relevant product market based 

mainly on defendant’s documents, price disparities, and testimony from executives); In re 

Polypore Int'l, Inc., 2010 FTC LEXIS 97, *31 & n.19 (Dec. 13, 2010) (relying on qualitative 

evidence to define relevant market), aff’d, 686 F.3d 1208, 1217-18 (11th Cir. 2012). As one 

treatise explains, “[i]n a world of imperfect price and quantity data from which to analyze 

elasticities, qualitative evidence of buyer’s willingness to substitute one good or service for 

another often provides the principal evidence of the boundaries of a relevant market.”8

 ABA 

 

8 The Commission’s reliance on qualitative economic evidence is also well established. See Horizontal 

Merger Guidelines § 4.1.3 (noting that, in determining relevant markets, the antitrust agencies rely on 

“reasonably available and reliable evidence,” including business documents, customer surveys, and past 

behavior); U.S. Dep’t of Justice and Fed. Trade Comm’n, Commentary on the Horizontal Merger 

Guidelines 9 (2006) (“In the vast majority of cases, the Agencies largely rely on non-econometric 

evidence, obtained primarily from customers and from business documents.”). 
PROVISIONALLY REDACTED PUBLIC VERSION

16 

Section of Antitrust Law, Mergers and Acquisitions 55 (3d ed. 2008). In this case, there is ample

economic evidence to support domestic fittings as a relevant market. 

McWane also disputes the lack of interchangeability between domestic and imported 

fittings. It argues that waterworks projects with legally-imposed domestic fittings requirements 

represent only a small fraction of all specifications, pointing to the increase in sales of imported 

fittings over time. But observations about the size of the domestic fittings market shed no light 

on the ability of customers to switch between domestic and imported fittings for domestic-only 

projects. As the ALJ found, “the evidence overwhelming[ly] showed [Buy American] 

regulations did in fact limit substitution.” ID at 250. 

McWane also claims that customers can “flip” specifications from domestic-only to open. 

The relevant testimony, however, indicates that flipping typically only occurs when domestic 

fittings are unavailable, rather than as the result of competition between domestic and imported 

fittings. See CX2496 at 006 (Brakefield Dep. at 18-20). In fact, the sole example in the record 

of flipping was an instance in which domestic fittings were unavailable to complete the job. Id. 

Moreover, while sales of imported fittings may have increased, the share of domestic-only 

specifications has remained largely unchanged in recent years. Compare IDF 1026 (in 2003, 

Buy American provisions applied to 10%-20% of fittings shipped), with IDF 1029 (prior to the 

passage of ARRA in 2009, projects with domestic-only specifications accounted for 15%-20% of 

sales). This suggests that any growth in import sales likely came from the greater use of imports 

in open-specification jobs and not from a decline in domestic-only projects. 

Finally, McWane argues that the Environmental Protection Agency’s grant of waivers 

permitting the use of imported fittings on ARRA-funded projects—and Complaint Counsel’s 

expert’s failure to account for such waivers—precludes a finding that a domestic fittings market

exists. But EPA-granted waivers were limited, and in any event had no impact on domestic-only 

requirements imposed by other federal, state, or municipal laws. IDF 531-33, 537. Notably, 

neither McWane nor Star sold any imported fittings for use in any ARRA-funded projects. 

IDF 538, 540. McWane even advised distributors that the cost-based exception to ARRA 

requirements was unlikely to apply to fittings sales. IDF 534. Sigma representatives testified 

that the quantities of imported fittings used on ARRA-funded waterworks projects were “few.” 

IDF 539. Other suppliers, as well as distributors, also indicated they were unaware of any 

instances in which imported fittings were used for ARRA-funded projects. IDF 541-43, 544-46. 

Accordingly, McWane’s protest that the potential for waivers offsets ARRA’s Buy American 

requirements is unavailing. 

2. McWane Possesses Monopoly Power in the Domestic Fittings Market

Having established that domestic fittings are a relevant market, we now consider whether 

McWane possessed monopoly power in that market. Both direct and indirect evidence show that 

it did. 

We begin by looking at market structure. From late 2006 until late 2009 when Star 

entered the domestic fittings market, McWane was the only domestic manufacturer of fittings. 

IDF 476, 1040. McWane’s share continued to be more than % in 2010 and % in 2011, 

after Star had entered the market. IDF 1042-43, in camera. These market shares far exceed the 
PROVISIONALLY REDACTED PUBLIC VERSION

17 

levels that courts typically require to support a prima facie showing of monopoly power. See

United States v. Dentsply Int’l, Inc., 399 F.3d 181, 188 (3d Cir. 2005) (holding that market share 

between 75% and 80% of sales is “more than adequate to establish a prima facie case of 

[monopoly] power”); Colo. Interstate Gas Co. v. Natural Gas Pipeline Co. of Am., 885 F.2d 683, 

694 n.18 (10th Cir. 1989) (noting that to establish “monopoly power, lower courts generally 

require a minimum market share of between 70% and 80%”). Enduring high market-share 

figures provide particularly strong evidence of monopoly power, especially in a mature and 

stable industry such as this one. See ZF Meritor LLC v. Eaton Corp., 696 F.3d 254, 285 (3d Cir. 

2012) (recognizing competitors’ “paltry penetration” in the market “over the years” as a sign of 

market power). 

Moreover, there are substantial barriers to entry in the domestic fittings market. ID at 

375-77; IDF 1050. A de novo entrant would need to build its own foundry or develop a supply 

chain of foundries to produce fittings, develop or purchase hundreds of patterns or moldings 

necessary to make a full line of fittings, have its products tested and certified to conform to 

AWWA standards and get on “approved” lists for engineers and municipalities, and develop a 

sales force and relationships with distributors. IDF 1044-48. As a result, a de novo entrant 

seeking to enter the fittings market would need approximately three to five years to do so. 

IDF 1049. 

Even existing suppliers of imported fittings face significant barriers to enter the domestic 

fittings market. Although equipped with an existing sales team and relationships with customers, 

to enter this market a supplier of imported fittings would still need to build its own foundry or 

arrange for existing foundries to manufacture its fittings, obtain patterns for the 100-200 fittings

necessary to enter with at least a partial line, and have its domestically-manufactured products 

tested and certified. IDF 1044-47, 1051-55, 1119-26, 1130-32. Additionally, as discussed more 

fully below, McWane’s exclusive dealing policy raised a barrier to entry for even current

suppliers of imported fittings, particularly those without a full line of fittings. See Dentsply, 399 

F.3d at 189-90 (recognizing that the defendant’s exclusionary conduct was a barrier to entry). 

The record reflects the significance of these barriers. Although Star was able to and did 

enter the market, two other suppliers of imported fittings investigated entry, but were deterred 

from making the attempt. After considering the availability of domestic foundries, patterns, and 

other equipment, as well as its weak financial condition, Sigma concluded that it could not 

overcome the complexity of entering the domestic fittings market. Similarly, although 

Serampore Industries Private (“SIP”), a small seller of imported fittings, possessed the financial 

capability of entering, the challenges to entering the market, including the unavailability of a 

single foundry capable of supplying its full needs, the high cost of developing patterns and

drilling and machining capabilities, and McWane’s exclusive dealing program, led SIP not to 

attempt it. IDF 1366, 1368, 1373, 1375-79. 

McWane argues Star’s entry proves that barriers to entry are low and contradicts a 

finding of monopoly power. But, as the Ninth Circuit has noted, “[t]he fact that entry has 

occurred does not necessarily preclude the existence of ‘significant’ entry barriers.” Rebel Oil

Co. v. Atlantic Richfield Co., 51 F.3d 1421, 1440 (9th Cir. 1995). “If the output or capacity of 

the new entrant is insufficient to take significant business away from the predator, they are 
PROVISIONALLY REDACTED PUBLIC VERSION

18 

unlikely to represent a challenge to the predator’s market power.” Id.; accord Allen-Myland v. 

Int’l Bus. Mach. Corp., 33 F.3d 194, 210 (3d Cir. 1994) (rejecting district court’s inference that 

existence of competitors demonstrated ease of entry that would disprove market power); 

Reazin v. Blue Cross & Blue Shield of Kansas, Inc., 899 F.2d 951, 971-72 (10th Cir. 1990) 

(upholding a finding of monopoly power because “no other entrant remotely approached 

[defendant’s] domination of the market”). 

The evidence here demonstrates that Star’s entry did not displace McWane’s monopoly 

position in the domestic fittings market. Star’s market share remained below % in 2010 and 

2011. IDF 1042-43, in camera. Moreover, Star’s presence in the market failed to constrain 

McWane’s pricing for domestic fittings. CX2199; IDF 1073-74, 1083, 1091-92. McWane’s 

customers testified that, after the 2009 enactment of the ARRA, prices for domestic fittings 

increased and McWane refused to negotiate prices. IDF 1073. Even after Star’s first domestic 

fittings sales in September 2009, McWane continued to sell its domestic fittings into domesticonly specifications at prices that earned significantly higher gross profits than for non-domestic 

fittings, which faced greater competition. IDF 1091. McWane also announced a price increase 

for domestic fittings in December 2009 that it applied in January 2010 (IDF 1083), which 

allowed McWane to earn even higher gross profits for domestic fittings in 2010 than in the prior 

year (IDF 1091-92). 

Even the testimony of McWane’s own expert, Dr. Normann, demonstrates that Star did 

not have a disciplining effect on McWane. He concluded that Star’s presence in the domestic 

fittings market in several states did not produce lower prices. IDF 1090. Despite McWane’s 

protests to the contrary, these facts establish its ability to control prices in the domestic fittings 

market and provides direct evidence of McWane’s monopoly power. 

B. EXCLUSIONARY CONDUCT

The next question is whether the challenged conduct—McWane’s Full Support 

Program—was an unlawful exclusive dealing policy that enabled McWane to maintain its

monopoly power in the domestic fittings market. “Unlawful maintenance of a monopoly is 

demonstrated by proof that a defendant has engaged in anti-competitive conduct that reasonably 

appears to be a significant contribution to maintaining monopoly power.” Dentsply, 399 F.3d at

187; Microsoft, 253 F.3d at 79. 

Distinguishing between exclusionary conduct and vigorous competition is not always 

easy. Microsoft, 253 F.3d at 58. Exclusive dealing arrangements are common and often 

procompetitive. See Race Tires Am., Inc. v. Hoosier Racing Tire Corp., 614 F.3d 57, 76 (3d Cir. 

2010) (“[I]n many circumstances, [exclusive dealing] may be highly efficient—to assure supply, 

price stability, outlets, investment, best efforts or the like—and pose no competitive threat at 

all.”); Stop & Shop Supermarket Co. v. Blue Cross & Blue Shield of R.I., 373 F.3d 57, 65 (1st 

Cir. 2004) (exclusive dealing agreements “can achieve legitimate economic benefits (reduced 

cost, stable long-term supply, predictable prices)”). For instance, exclusive dealing can, among 

other things, align distributor and manufacturer incentives and thus prevent free-rider problems, 

or lead a distributor to promote the product of its exclusive supplier more effectively, thereby 

increasing interbrand competition. See Ryko Mfg. Co. v. Eden Servs., 823 F.2d 1215, 1234 n.17 

(8th Cir. 1987); Roland Mach. Co. v. Dresser Indus., Inc., 749 F.2d 380, 395 (7th Cir. 1984); see 
PROVISIONALLY REDACTED PUBLIC VERSION

19 

also Jonathan M. Jacobson, Exclusive Dealing, Foreclosure & Consumer Harm, 70 Antitrust L.J. 

311, 357-58 (2002); Benjamin Klein & Kevin Murphy, Exclusive Dealing Intensifies 

Competition for Distribution, 75 Antitrust L.J. 433, 465-66 (2008). It can also result in lower 

prices because suppliers may be willing to reduce prices in exchange for higher sales volume. 

See Stop & Shop Supermarket, 373 F.3d at 62. Indeed, “competition to be an exclusive supplier 

may constitute ‘a vital form of rivalry, and often the most powerful one, which the antitrust laws 

encourage rather than suppress.’” Race Tires Am., 614 F.3d at 76 (quoting Menasha Corp. v. 

News Am. Marketing In–Store, Inc., 354 F.3d 661, 663 (7th Cir. 2004)). 

Despite these and other potential benefits, exclusive dealing can harm competition under 

certain circumstances. See Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 45 (1984) 

(O’Connor, J., concurring) (“Exclusive dealing can have adverse economic consequences by 

allowing one supplier of goods or services unreasonably to deprive other suppliers of a market 

for their goods . . . .”); Jacobson, 70 Antitrust L.J. at 328 (explaining that courts have manifested 

concern when exclusive dealing has been used to foster market power). Exclusive dealing can be 

particularly troubling when imposed by a monopolist. ZF Meritor, 696 F.3d at 271; Dentsply, 

399 F.3d at 187 (“Behavior that otherwise might comply with antitrust law may be 

impermissibly exclusionary when practiced by a monopolist.”). 

Most pertinent here, exclusive dealing can be harmful when it enables a firm to acquire or 

maintain monopoly power by impairing the ability of rivals to grow into effective competitors 

that might erode the firm’s dominant position. See Microsoft, 253 F.3d at 70-71; Interface Grp., 

Inc. v. Mass. Port Auth., 816 F.2d 9, 11 (1st Cir. 1987); Barry Wright Corp. v. ITT Grinnell 

Corp., 724 F.2d 227 (1st Cir. 1983). The dominant firm’s exclusive dealing arrangements may 

prevent new firms from achieving the scale necessary for them to become efficient competitors. 

See Dennis W. Carlton, A General Analysis of Exclusionary Conduct and Refusal to Deal, 68 

Antitrust L.J. 659, 663, 655 n.15 (2001) (explaining that exclusive dealing may be harmful when 

it deprives rivals “of the necessary scale to achieve efficiencies, even though, absent the 

exclusivity,” more than one firm “would . . . be large enough to achieve efficiency”). When a 

monopolist can impede potential rivals from becoming effective competitors, it can maintain 

monopoly prices and thereby harm consumers. See Herbert Hovenkamp, XI Antitrust Law

¶ 1802c, at 76-77 (3d ed. 2011); Richard A. Posner, Antitrust Law 229 (2d ed. 2001) (noting that 

exclusive dealing may “increase the scale necessary for new entry, and . . . increase the time 

required for entry and hence the opportunity for monopoly pricing”). 

As one leading commentator has summarized, the preconditions for competitive harm 

are: (i) exclusive dealing or similar arrangements covering a significant portion of distribution; 

(ii) entry barriers or equivalent impediments making it difficult for rivals or potential rivals to 

obtain efficient distribution; and (iii) resulting prolongation of the dominant firm’s ability to earn 

monopoly profits in the downstream market. See Hovenkamp, XI Antitrust Law ¶ 1802b, at 74-

76. Exclusive dealing can be anticompetitive, therefore, if it facilitates the exercise of market 

power by either impairing a rival’s ability to achieve the scale necessary to become efficient, or 

if it makes a rival less efficient by depriving it of “efficient access to the downstream market.” 

Id.; Dennis W. Carlton & Ken Heyer, Appropriate Antitrust Policy Towards Single-Firm 

Conduct: Extraction vs. Extension, 22 Antitrust 50, 53 (2008). 
PROVISIONALLY REDACTED PUBLIC VERSION

20 

We evaluate McWane’s Full Support Program using this accepted theory of competitive 

harm. In assessing McWane’s exclusive dealing arrangement, we examine both the 

anticompetitive and procompetitive effects of the conduct to determine whether, in light of 

McWane’s monopoly power, its use of exclusive dealing prevented rivals from meaningfully 

competing and had a substantial anticompetitive effect on competition. This approach is 

consistent with recent court precedent on exclusive dealing. See ZF Meritor, 696 F.3d at 271-72; 

Dentsply, 399 F.3d at 187; Microsoft, 253 F.3d at 58-59. As discussed below, we conclude that 

McWane’s Full Support Program was an unlawful exclusive dealing policy that contributed 

significantly to the maintenance of McWane’s monopoly power in the domestic fittings market. 

1. McWane’s “Full Support Program” Is an Exclusive Dealing Policy 

“An exclusive dealing arrangement is an agreement in which a buyer agrees to purchase 

certain goods or services only from a particular seller for a certain period of time.” ZF Meritor, 

696 F.3d at 270. McWane’s Full Support Program is an exclusive dealing policy by its terms, 

operation, and intent. McWane designed and implemented the program to deny Star and other 

potential competitors access to distributors and thereby impede their effective entry into the 

domestic fittings market in order to maintain its monopoly. 

McWane’s strategy and aim is clear from its internal business documents. Despite the 

fact that about 80% of demand can be met with 100 or fewer commonly used sizes and 

configurations of fittings, referred to as “A or B” fittings, distributors need access to a full line of 

domestic fittings to meet all of their customers’ needs either through their own supply or with 

supply from others. IDF 306-08, 1252. As the only full-line supplier of domestic fittings, 

McWane knew very well that an exclusive dealing requirement would prevent distributors from 

purchasing from suppliers without full lines and took this into account when designing its Full 

Support Program. In a June 2009 presentation outlining options for McWane’s response to 

Star’s announced entry into the market, Mr. Tatman proposed a strategy to “Force Distribution to 

Pick their Horse.” The proposal included a “Hard Approach – Full Line or No Line” and 

explained that the advantages of such a strategy included “[p]otentially rais[ing] the level of 

supply concern among contractors” and “Forc[ing] Star/Sigma to absorb the costs associated 

with having a more full line before they can secure major distribution.” CX0076 at 009-010; see 

also CX0329 at 001 (advocating Full Line or No Line as preferred approach and best option 

against Star). 

Later, while preparing for the rollout of the Full Support Program, McWane’s National 

Sales Manager, Mr. Jansen, led an internal conference call with McWane’s sales force during 

which he explained the new policy: “What are we going to do if a customer buys Star domestic? 

We are not going to sell them our domestic . . . . Once they use Star, they can’t EVER buy 

domestic from us.” IDF 1179. Mr. Tatman similarly noted in an e-mail that “we won’t provide 

domestic product to distributors who are not fully supporting our domestic product lines.” 

CX0113 at 001. 

Following Star’s first sales of domestic fittings, McWane publicly announced the 

program on September 22, 2009, in a letter to distributors:
PROVISIONALLY REDACTED PUBLIC VERSION

21 

[E]ffective October 1, 2009, McWane will adopt a program whereby 

our domestic fittings and accessories will be available to customers 

who elect to fully support McWane branded products for their 

domestic fitting and accessory requirements. . . . Customers who elect 

not to support this program may forgo participation in any unpaid 

rebates for domestic fittings and accessories or shipment of their 

domestic fittings and accessory orders of Tyler Union or Clow Water 

products for up to 12 weeks. 

CX0010. Despite the soft language of “may” and “or,” McWane made sure distributors received 

the message that they would no longer be able to buy domestic fittings from McWane if they 

purchased domestic fittings from Star. See IDF 1180 (finding that McWane informed customers 

that if one branch of a distributor purchased domestic fittings from Star, all branches would be 

cut off). The only exceptions to this exclusivity policy were in situations where McWane 

domestic fittings were either unavailable within normal time frames, or purchased from a 

competitor along with pipe.9 IDF 1173. 

As McWane intended, most distributors interpreted the announced policy as a threat that 

McWane would terminate their ability to purchase any of McWane’s domestic fittings if they 

purchased any domestic fittings from Star. See IDF 1184 (distributor Hajoca believed it would 

lose its rebates or be cut off from purchasing from McWane), 1187 (Groeniger viewed the policy 

as a threat that if it purchased domestic fittings from Star, McWane would not sell it any 

domestic fittings), 1188 (Illinois Meter believed it had been threatened with loss of access to 

McWane’s domestic fittings if it bought from Star), 1190 (E.J. Prescott believed “If you bought 

one [domestic] fitting [from Star] in one of our 26 places, we’re out, simple. . . . [McWane] said 

it’s all or nothing.”), 1192 (CI Thornburg interpreted the letter as a threat); IDF 1300 (U.S. Pipe 

was told that if it purchased from Star, “don’t come back to McWane”); but cf. Thees, Tr. 3109-

11 (Ferguson believed there may have been room to negotiate the Full Support Program’s 

requirements and that its status as a large buyer would offer protection; ultimately, however, 

Ferguson chose not to purchase domestic fittings from Star unless McWane did not have the 

domestic fittings available (IDF 1262)). McWane acknowledged in an internal presentation that 

the message had been received by distributors: “Although the words ‘may’ and ‘or’ were 

specifically used, the market has interpreted the communication in the more hard line ‘will’ 

sense. . . . Access to McWane or Sigma requires distributors to exclusively support McWane 

where products are available within normal lead times. Violations will result in: Loss of access, 

loss of accrued rebates.” IDF 1183. 

And McWane’s threat to terminate distributors who did not comply with its Full Support 

Program was not hollow. When Hajoca’s Tulsa branch purchased Star domestic fittings, 

 

9 To the extent that McWane’s rebates were part of the policy, McWane’s threat to terminate any rebates 

previously offered if a distributor purchased from Star served only to further advance the exclusive 

dealing requirement of the program. As a result, because McWane’s program was plainly more than a 

rebate policy, the arguments McWane raises about above-cost pricing are inapposite. Our principal 

concern is with McWane’s threats to terminate its supply to distributors who purchased rival domestic 

fittings.
PROVISIONALLY REDACTED PUBLIC VERSION

22 

McWane cut off domestic fitting sales to all Hajoca branches, including those that had not 

purchased from Star. IDF 1208-13 (McWane refused to supply Hajoca’s Lansdale branch even 

after Hajoca offered to pay higher prices). In an e-mail to customers of Hajoca’s Lansdale, 

Pennsylvania branch, McWane stated, “We don’t like the situation either but feel we can’t 

support someone who is helping our competition build a line against us.” IDF 1207. Consistent 

with McWane’s policy, and in fact for a period longer than the 12 weeks specified in McWane’s 

September 2009 letter, Hajoca was unable to place new domestic fittings orders with McWane. 

IDF 1219. McWane also withheld Hajoca’s rebates for the fourth quarter of 2009. IDF 1224-27. 

It was only in April 2010, after the FTC commenced its investigation, that McWane and Hajoca 

negotiated an agreement allowing Hajoca to resume buying domestic fittings from McWane. 

Even under that agreement, however, Hajoca’s Tulsa branch continued to be precluded from 

accessing McWane domestic fittings. IDF 1220-23. 

In sum, the Full Support Program effectively required distributors to purchase domestic 

fittings only from McWane, under a real threat of losing access to McWane’s full line of 

domestic fittings. Accordingly, we find that McWane’s Full Support Program was an exclusive 

dealing policy. 

2. McWane’s Full Support Program Foreclosed Star’s Access to 

Distributors for Domestic Fittings and Harmed Competition

A finding of exclusive dealing alone is insufficient to establish liability. There must be 

evidence that competition, not merely a competitor, has been harmed. Dentsply, 399 F.3d at 187. 

The conduct, in other words, “must harm the competitive process and thereby harm consumers.” 

Microsoft, 253 F.3d at 58. Accordingly, the central question is whether McWane’s exclusive 

dealing policy raised “the cost of obtaining efficient distribution” for its rivals and thereby 

impaired “the competitive effectiveness” of its rivals with “resulting harm to competition.” 

Carlton, 68 Antitrust L.J. at 665 n.15. Importantly, to be unlawful, the conduct need not have 

foreclosed all competition from the market; rather, it must have impeded a substantial number of 

rivals or severely restricted the scope of the market. Dentsply, 399 F.3d at 191. 

With few exceptions, McWane’s program forced its distributors to carry McWane 

domestic fittings exclusively. McWane thus deprived its rivals, mainly Star, of distribution 

sufficient to achieve efficient scale, thereby raising costs and slowing or preventing effective 

entry. The result harmed competition by increasing barriers to entry and allowing McWane to 

maintain its monopoly position, which prevented meaningful price competition and deprived

consumers of the ability to choose among the products, terms of sale, and services of varying 

suppliers of domestic fittings. 

a. Foreclosure of Access to Distributors

A domestic fittings entrant is unable to compete effectively without access to distributors. 

The benefits that distributors provide to fittings suppliers include offering better sales coverage

(IDF 400, 402-03, 408-09); more local influence and knowledge of projects in their market area

(IDF 400, 408-09, 412); carrying local inventory (IDF 400, 402-06); aggregating small orders 

and shipments to capitalize on scale efficiencies (IDF 405); and carrying credit risk (IDF 400, 

402, 407, 411). For a fittings supplier to replicate these distributor functions would impose an 
PROVISIONALLY REDACTED PUBLIC VERSION

23 

“astronomical” cost on the supplier that would be prohibitively expensive. IDF 402. The 

benefits accruing from distributors make them the preferred and most efficient sales channel for 

domestic fittings manufacturers. Not surprisingly, McWane views distributors as “critical to [its] 

success,” as does Star. IDF 401-02. No evidence supports the existence of viable alternate 

distribution channels, including direct sales to end users. IDF 381. Indeed, virtually all fittings 

sales are made through distributors. JSLF ¶ 14, IDF 367 (99% of McWane’s sales of fittings are 

through distributors), IDF 373-74 (similarly, Sigma and Star sell almost all of their fittings to 

distributors). 

McWane’s Full Support Program foreclosed Star and other potential entrants from 

accessing a substantial share of distributors. Following announcement of the program, the 

country’s two largest waterworks distributors, HD Supply, with a roughly 28% to 35% share of 

distribution (IDF 378), and Ferguson, with about 25% of distribution (IDF 379), prohibited their 

branches from purchasing domestic fittings from Star unless the purchases fell into one of the 

exceptions specified in the Full Support Program. One day after learning about the program, HD 

Supply’s management sent a memo to its district, branch, and operations managers describing 

McWane’s policy and stating that “we need to adhere to this mandate and purchase all of our 

American made fittings through Union-Tyler [McWane] or Sigma . . . [to] ensure that we have a 

full line of product . . . as well as continued compliance with the Federal [ARRA Buy American] 

requirements.” IDF 1238-41. HD Supply even cancelled pending orders for domestic fittings it 

had with Star. IDF 1242. Although a Ferguson executive testified that his company “was 

planning on purchasing all its needs from McWane” regardless of the Full Support Program 

because Star lacked a complete line of domestic fittings (Thees, Tr. 3109; see also IDF 1266, 

1272), the record suggests that the Full Support Program nonetheless cost Star some Ferguson 

business. A Ferguson Vice President called district managers after McWane’s policy was 

announced to ensure that it did not buy from Star, and at least one job Ferguson initially awarded 

to Star was cancelled. IDF 1260-61, 1263. 

Similarly, when WinWholesale, the nation’s third-largest waterworks distributor, 

received notice of the Full Support Program, it listed Star’s vendor status internally as “Not 

Approved,” which barred its local companies from buying from Star under any circumstances 

without board approval. IDF 236, 1331-32, 1334-37. WinWholesale, however, did allow local 

companies to make purchases from Star that fell within the exceptions allowed by the Full 

Support Program, and, as a result, some WinWholesale local companies made a handful of 

purchases from Star. See IDF 1338, 1343. 

Other large distributors likewise refused to purchase from Star because of the Full 

Support Program, sometimes even though Star offered lower prices. For instance, despite a 

commitment from Star to offer lower prices than McWane, U.S. Pipe instructed its purchasing 

manager not to purchase domestic fittings from Star unless McWane could not provide the 

needed size. IDF 1295, 1299, 1301-02. As a result, except for minor purchases falling within 

the exceptions to McWane’s exclusive dealing policy, U.S. Pipe did not purchase domestic 

fittings from Star until September 2010. IDF 1309-11. Similarly, Star offered TDG distributors 

a more generous rebate program on domestic fittings than McWane, but Star believed they 

likewise rejected Star’s offer because of the Full Support Program. IDF 1391. Groeniger, which 

had given Star business on two sizeable domestic-only projects prior to McWane’s 
PROVISIONALLY REDACTED PUBLIC VERSION

24 

announcement of the Full Support Program, was reluctant to make further purchases of domestic 

fittings from Star because it needed access to McWane’s domestic fittings and feared retaliation. 

IDF 1313-18; IDF 1329-30 (testifying that, but for McWane’s policy, Groeniger would have 

given Star 50% of its domestic fittings business in 2010). The Full Support Program also 

deterred Illinois Meter from purchasing domestic fittings from Star because of the need to have 

access to McWane’s full line. Sheley, Tr. 3413, 3417-18; IDF 1357-58, 1362-64.10

In the face of this substantial evidence, McWane argues its program could not have 

foreclosed access to distributors because it did not require distributors to commit to purchasing 

McWane’s fittings exclusively for a lengthy period of time. McWane’s argument ignores the 

reality of a marketplace where distributors need access to a full line of domestic fittings to 

service their customers. “An express exclusivity requirement . . . is not necessary, because we 

look past the terms of the contract to ascertain the relationship between the parties and the effect 

of the agreement ‘in the real world.’ Thus, de facto exclusive dealing claims are cognizable 

under the antitrust laws.” ZF Meritor, 696 F.3d at 270; Minnesota Mining & Mfg., 35 F. Supp. 

2d. 1138, 1144 (D. Minn. 1999) (holding that the proper focus of an exclusive dealing 

arrangement is not its duration, but its “practical effect”). Even arrangements that are terminable 

at will can be anticompetitive. Dentsply, 399 F.3d at 194 (noting that “in spite of the legal ease 

with which the relationship can be terminated,” affected dealers may “have a strong economic 

incentive to continue carrying [the supplier’s product]”). 

In fact, McWane’s Full Support Program required exclusive dealing for as long as 

McWane desired. The overwhelming evidence shows the practical effect of McWane’s program 

was to make it economically infeasible for distributors to drop McWane’s full line of domestic 

fittings and switch to Star. This reality made McWane’s exclusive dealing program as effective 

and enduring as a long-term contract. See Lorain Journal Co. v. United States, 342 U.S. 143, 

149-50 (1951) (holding that unilateral conduct of indefinite duration by a monopolist with a 

“practically indispensable” service “forced numerous [customers] to refrain from” dealing with a 

rival).

McWane also disputes the connection between its Full Support Program and Star’s 

lagging sales, pointing to other concerns distributors had about Star’s supply of domestic fittings. 

But the Full Support Program need not have been the sole reason for distributors’ reluctance to 

purchase domestic fittings from Star. The relevant question is whether McWane’s policy 

contributed significantly to that result. See Microsoft, 253 F.3d at 78-80; Conwood Co. v. U.S. 

Tobacco Co., 290 F.3d 768, 791 (6th Cir. 2002) (explaining that defendant’s conduct “need not 

 

10 Complaint Counsel estimates that McWane’s policy foreclosed approximately % of distribution, 

emphasizing that this is a far higher percentage than what courts have typically viewed as creating a 

potential competitive problem. CCAnsB at 17 (citing, inter alia, IDF 357, in camera); Microsoft, 253 

F.3d at 70 (noting that a monopolist’s use of exclusive contracts may in certain circumstances “give rise 

to a § 2 violation even though the contracts foreclose less than the roughly 40% to 50% share usually 

required in order to establish a § 1 violation”); Hovenkamp, XI Antitrust Law ¶ 1821c.1, at 191 

(foreclosure above 50% is “routinely condemned”). We need not adopt Complaint Counsel’s estimate, 

however, to conclude that foreclosure here was both substantial and problematic. As the Dentsply court

concluded, “the reality . . . is that the firm that ties up the key dealers rules the market.” 399 F.3d at 190. 
PROVISIONALLY REDACTED PUBLIC VERSION

25 

be the sole proximate cause” of lost sales that caused injury). The evidence amply shows that the 

Full Support Program substantially contributed to distributors’ “reluctance to purchase from 

Star.” ID at 410; see also ZF Meritor, 696 F.3d at 266, 285-86 (focusing on foreclosure created 

by exclusive dealing despite acknowledging that plaintiff could have competed more 

effectively).

b. Adverse Impact on Competition

McWane’s exclusive dealing program created a strong economic incentive for 

distributors to reject Star’s products, artificially diminishing Star’s competitive prospects in the 

domestic fittings market. Beginning in Spring 2009, Star considered purchasing its own 

domestic foundry. IDF 1402. By September or October, it had identified a specific foundry and 

entered into negotiations to purchase it. IDF 1404. Star estimated it would cost 

to acquire the facility and had the financial ability to make the purchase. IDF 1405-06, 

in camera. However, McWane’s announcement of its exclusive dealing policy in September and 

its impact on Star’s sales prompted Star to rethink its strategy of acquiring a domestic foundry. 

IDF 1407-08. 

Before McWane’s September announcement, Star had received requests for quotes for 

domestic fittings worth approximately $10 million. IDF 1395. As discussed above, almost 

immediately following the announcement, distributors, including HD Supply, Ferguson, and 

WinWholesale, withdrew their requests for quotes or orders and informed Star they were no 

longer interested in purchasing domestic fittings from Star. IDF 1381-82. Based in part on the 

withdrawn quotes, Star estimated it would have had in sales of domestic 

fittings in 2010, rising to in 2011, if McWane had not implemented the Full 

Support Program. IDF 1394-95, in camera. At trial, Star testified that more refined estimates 

showed that it needed between of domestic fittings sales to justify 

purchasing its own foundry. IDF 1400, in camera; Bhargava, Tr. 2962-63, in camera. Star’s 

actual sales of domestic fittings, in 2010, were insufficient for Star to justify 

operating a foundry of its own. IDF 1396, in camera, 1401. 

Consequently, rather than acquiring its own foundry, Star contracted with six foundries to 

produce raw castings, which Star then shipped to its Houston facility for finishing. This route 

was more costly and less efficient than a foundry owned and operated by Star would have been 

because using independent foundries means less specialized and efficient equipment; smaller 

batch sizes; additional logistical costs associated with inventory, finishing, and freight; less 

control over inventory levels; less ability to expedite orders; and inefficiencies resulting from 

dealing with multiple foundries. IDF 1409-10. Independent foundries also have higher labor 

costs and add their own markup. IDF 1412-13. Shipping costs alone from the foundries to 

Houston for finishing added an additional % to the cost of Star’s domestic fittings. IDF 1411, 

in camera. Star estimated that the cost of producing domestic fittings at its own foundry would 

have been % lower than the cost of contracting with independent foundries, and that it 

could have reduced its domestic fittings prices by %. IDF 1419-20, in camera. Moreover, 

because some customers were reluctant to rely on a supplier without its own foundry, IDF 1254, 

1272, by denying Star the scale necessary to operate its own foundry, McWane further cemented 

its monopoly. 
PROVISIONALLY REDACTED PUBLIC VERSION

26 

McWane anticipated and intended this result.11 Mr. Tatman could not have been more 

clear: “We need to make sure that they don’t reach any critical mass that will allow them to 

continue to invest and receive a profitable return.” CX0074 at 001; see also IDF 1155 (quoting 

CX0067 at 002) (in a “brainstorming document,” “Mr. Tatman observed that ‘any competitor’ 

seeking to enter the domestic fittings market could face ‘significant blocking issues’ if they are 

not a ‘full line’ domestic supplier”); CX0076 at 009 (explaining that a “Force Distribution to 

Pick their Horse” strategic response to entry would “Force[] Star/Sigma to absorb the costs 

associated with having a more full line before they can secure major distribution”). Impairing its 

rivals’ ability to threaten McWane’s monopoly was the Full Support Program’s core objective. 

And Star was not the only firm affected by McWane’s exclusive dealing policy. Fittings 

importer SIP also evaluated whether to enter the domestic fittings market in 2009. IDF 1365-80. 

SIP believed that because of McWane’s policy, it would have difficulty acquiring distributor 

customers if it entered with less than a full line. IDF 1377. Although McWane’s Full Support 

Program was not the only reason SIP decided not to enter, it was a significant reason. IDF 1380 

(“That was the straw that broke the camel’s back.”) (quoting CX2522, in camera (Agarwal, Dep. 

at 67-68)).

In his dissent, Commissioner Wright asks us to apply a new, heightened standard of proof 

for exclusive dealing cases and concludes under that standard that Complaint Counsel failed to 

prove McWane’s exclusive dealing policy harmed competition.12 Although Commissioner 

Wright assumes that McWane is a monopolist for his analysis and agrees with the majority 

decision in various respects, including that “[t]here is ample record evidence demonstrating that 

the Full Support Program harmed McWane’s rival Star,” he claims “Complaint Counsel fails 

totally to establish, as it must under the antitrust laws, that McWane’s conduct harmed 

competition.”13 Dissent at 4-5. We respectfully disagree. In our view, the evidence that 

McWane’s exclusive dealing policy significantly impaired the access of McWane’s only rival, 

Star, to the main channel of distribution, thereby increasing its costs and keeping it below the 

critical level necessary to pose a real competitive threat, is plainly sufficient to meet the standard 

of harm to competition set forth in the prevailing case law. 

 

11 While our aim is to ascertain the effect of McWane’s exclusive dealing policy, evidence of McWane’s 

intent is relevant “to the extent it helps us understand the likely effect of [McWane’s] conduct.” 

Microsoft, 253 F.3d at 59; Chicago Bd. of Trade v. United States, 246 U.S. 231, 238 (1918) (“knowledge 

of intent may help the court interpret facts and predict consequences”). 

12 Although harm to competition is certainly necessary for a claim of monopolization, Commissioner 

Wright would apply a standard of evidentiary proof for this element that is far beyond that called for by 

applicable Section 2 law. See generally ZF Meritor, 696 F.3d at 286; Dentsply, 399 F.3d at 191; 

Microsoft, 253 F.3d at 70-71. For instance, he insists that Complaint Counsel was required to calculate 

the specific level of sales Star lost as result of the Full Support Program. Tellingly, Commissioner Wright 

offers no legal support for this heightened standard. 

13 We note that while the aim of the antitrust laws is to protect competition, not competitors, there is harm 

to competition when a monopolist’s only rival is precluded from becoming an effective competitor. See 

Spirit Airlines, 431 F.3d at 951 (“[I]n a concentrated market with very high barriers to entry, competition 

will not exist without competitors.”). 
PROVISIONALLY REDACTED PUBLIC VERSION

27 

Moreover, there are significant factual oversights in his analysis even applying his 

proposed heightened standard. For instance, Commissioner Wright argues there is no evidence 

supporting Complaint Counsel’s contention that Star needed its own foundry to compete 

effectively in the market. But the evidence shows that costs decline substantially when a market 

participant is able to operate its own foundry.14 By preventing Star from securing enough sales 

volume to support its own foundry, McWane’s exclusive dealing program increased Star’s costs 

and denied it the ability to compete effectively. We also disagree with Commissioner Wright’s 

assertion that the notion that Star was operating below “minimum efficient scale” “strains 

credulity” when one takes into account Star’s entry and growth in the market. Dissent at 

32. Complaint Counsel argues persuasively that McWane was charging a monopoly price, 

which means that even a less efficient firm could enter and grow market share. The key question 

is whether the exclusionary conduct kept rivals from developing into real competitive threats; 

here we find that it did. See Dentsply, 399 F.3d at 190-91 (finding competitive harm when 

defendant’s excluded rivals failed to achieve “the critical level necessary for any rival to pose a 

real [competitive] threat”); Microsoft, 253 F.3d at 70-71 (stating that defendant’s exclusionary 

conduct kept [competitor’s product] “below the critical level necessary for [competitor’s 

product] or any other rival to pose a real threat to Microsoft’s monopoly”). 

Commissioner Wright also argues that our foreclosure analysis is “defective” on the 

ground that “[i]t makes little sense to conclude that Star was foreclosed from McWane’s sales to 

distributors that would have taken place with or without the Full Support Program.” Dissent at 

38. He insists that to prevail, Complaint Counsel was required to show that but for the Full 

Support Program, a significant volume of sales would have actually shifted to Star. 

Commissioner Wright appears to assume, however, that the sales a monopolist like McWane has 

tied up with its distributors are not contestable and that a second meaningful alternative in the 

market will have no impact on price or other forms of competition, regardless of which supplier 

customers may ultimately choose. This assumption overlooks record evidence that McWane’s 

main customers immediately sought an alternative when given the option, placing millions of 

dollars’ worth of requests for proposal with Star in the few months after it announced entry and 

before McWane imposed the Full Support Program. 

In addition, contrary to Commissioner Wright’s assertion, there is evidence that 

McWane’s exclusionary conduct had an impact on price. McWane itself recognized that if Star 

entered, prices in the domestic market would likely fall just like in the imported market. 

IDF 1148-49, 1151-53. McWane understood it had a choice—it could try to maintain its 

dominant market share either by lowering prices to compete against Star (CX0465 at 004 (noting 

that McWane could maintain its “near 100% share” by dropping prices)), or it could adopt an 

exclusive dealing policy that would prevent its rival from achieving the scale necessary to 

 

14 Commissioner Wright points to Sigma’s virtual manufacturing model as evidence that owning a 

foundry is not essential to achieving efficiencies. Dissent at 31-32. However, this comparison is inapt. 

We are concerned with the effect of McWane’s conduct on Star’s ability to do business in the market for 

domestically-manufactured fittings. The fact that Sigma uses a virtual manufacturing model for its 

imported fittings business sheds little light on that question.
PROVISIONALLY REDACTED PUBLIC VERSION

28 

become a more significant competitor (CX0067 at 002 (noting that rivals without a full domestic 

line would be susceptible to “significant blocking issues”)). By adopting the program, McWane 

was able to ensure that prices and gross profits for domestic fittings remained high. In fact, 

following Star’s entry, McWane’s financials reveal that, while its production costs for domestic 

fittings remained flat for 2009 and 2010, McWane raised domestic fittings prices and increased 

its gross profits during that same time. IDF 1091-93, in camera. Moreover, McWane was able 

to impose those higher prices for domestic fittings in both states where it had a 100% market 

share and those where it faced direct competition from Star. IDF 1090. 

In short, Commissioner Wright fails to adequately consider that foreclosure delaying a 

rival’s effectiveness and growth in the market results in consumer harm and that there is 

considerable evidence to support a reasonable inference that the Full Support Program had that 

very result. 

By foreclosing Star’s access to distributors, McWane’s exclusive dealing program 

increased Star’s costs and denied it the ability to compete effectively. Courts have not hesitated 

to find antitrust liability when exclusive dealing contributes significantly to maintaining a 

monopoly through such effects. See Dentsply, 399 F.3d at 190-91 (finding competitive harm 

when defendant’s excluded rivals failed to achieve “the critical level necessary for any rival to 

pose a real [competitive] threat”); Microsoft, 253 F.3d at 70-71 (stating that defendant’s 

exclusionary conduct kept [competitor’s product] “below the critical level necessary for 

[competitor’s product] or any other rival to pose a real threat to Microsoft’s monopoly”); cf. ZF 

Meritor, 696 F.3d at 289 (finding antitrust injury when the defendant’s conduct denied rivals the 

market share they needed to “remain viable”).

McWane’s exclusive dealing policy also had another adverse impact on competition: it 

denied its customers the ability to make a meaningful choice regarding domestic fittings 

suppliers that the evidence shows many of them sought. See ZF Meritor, 696 F.3d at 285 (noting 

that a monopolist may cause harm to competition when it “use[s] its power to break the 

competitive mechanism and deprive customers of the ability to make a meaningful choice”); 

Dentsply, 399 F.3d at 194 (holding that the defendant’s exclusive dealing policy had the 

anticompetitive effect of limiting the choice of products available to end users); see also Race 

Tires, 614 F.3d at 77-78 (recognizing the important role “coercion” plays in the Section 2 

context). Although fittings are commodity products, there is evidence of competition among 

suppliers for service and other terms. See IDF 1584 (noting that some distributors preferred 

Sigma over McWane because of certain servicing benefits, including faster delivery); IDF 1586 

(ACIPCO preferred Sigma over McWane because Sigma offered additional specialty services, 

such as coatings, linings, and tapes); IDF 1588 (Groeniger preferred buying from Sigma because 

it preferred Sigma’s service to that offered by McWane and Star). As the Third Circuit noted in 

Dentsply, “[w]hile the [customers] might prefer to sell the [products] of multiple manufacturers, 

if faced with an all or nothing choice they may accede to the dominant firm’s wish for exclusive 

dealing.” 399 F.3d at 194 (internal quotations omitted). 

Distributor decisions to reject Star following implementation of the Full Support 

Program, sometimes even when Star offered lower prices, show that McWane’s policy and 

position as a supplier of necessary products effectively eliminated distributors’ choices regarding 
PROVISIONALLY REDACTED PUBLIC VERSION

29 

their source of domestic fittings supply and prevented them from using Star to extract better 

prices or services from McWane. IDF 1395 (finding that, after announcement of the Full 

Support Program, Star lost $10 million in request for quotes from, among others, HD Supply, 

Ferguson, Mainline, WinWater, and other customers); IDF 1295, 1299, 1301-02 (finding that 

U.S. Pipe rejected Star despite Star’s offer of lower prices than McWane). The absence of 

exclusivity in the more competitive imported fittings market highlights the coercive element of 

McWane’s policy. See IDF 392 (noting that distributors typically purchase imported fittings 

from at least two different suppliers). 

c. McWane’s Rebuttal

McWane disagrees that its policy impaired Star’s ability to compete in the domestic 

fittings market. It contends first that Star’s sales to 130 distributors enabling Star to obtain % 

market share in 2010 and more than % market share in 2011 demonstrate successful entry 

into the domestic fittings market, thereby precluding a finding of liability as a matter of law. 

IDF 357, in camera. We rejected this same argument when we denied McWane motion for 

summary decision. Under Section 2, “it is not necessary that all competition be removed from 

the market. The test is not total foreclosure, but whether the challenged practices bar a 

substantial number of rivals or severely restrict the market’s ambit.” Dentsply, 399 F.3d at 191; 

accord ZF Meritor, 696 F.3d at 265, 283-84 (exclusive dealing violated Section 2 even though 

monopolist allowed customers to purchase up to 20% of product from rival). Moreover, growth 

and market share alone is not the relevant benchmark. The appropriate comparison is growth 

that would have occurred absent the Full Support Program. Here, as we have discussed, 

McWane’s exclusive dealing policy ensured that Star’s sales remained limited and enabled 

McWane to maintain its monopoly position. As we noted previously, even McWane’s expert 

agreed that Star’s entry did not affect McWane’s prices for domestic fittings. IDF 1090. Indeed, 

soon after Star entered the market, McWane announced and implemented price increases for 

domestic fittings. IDF 1083. 

Further, McWane’s repeated claim that Star sold to 130 distributors is meaningless 

without context or a showing as to the size of Star’s sales. As the ALJ explained, “[i]n counting 

the number of customers to whom Star sold domestic fittings, Respondent’s expert, 

Dr. Normann, counted each Distributor that may have purchased only a single Domestic Fitting 

from Star, or whose purchases fell into one of the limited exceptions to McWane’s Full Support 

Program. IDF 1142. The number of customers, without more information on the nature and 

extent of their purchases, is not entitled to substantial weight.” ID at 409. Here, the record 

shows that distributors primarily bought domestic fittings from Star under the exceptions to the 

Full Support Program, i.e., when McWane was unable to offer specific fittings in timely fashion 

or as part of a bundled order, even when they would not otherwise purchase from Star for fear of 

losing access to McWane’s domestic fittings. See IDF 1237, 1242, 1257 (HD Supply); 1299, 

1305, 1309 (U.S. Pipe); 1328-29 (Groeniger).

McWane also argues that, even if Star was excluded, there was no harm to competition 

because “the ALJ found that Star’s reliance on jobber foundries made it a less efficient, higher 

cost supplier, and thus that McWane’s domestic fittings prices were lower[.]” RAppB at 29. We 

disagree. McWane’s argument conveniently overlooks the role its exclusive dealing policy 

played in limiting Star’s sales and the resulting impact the policy had on Star’s scale of 
PROVISIONALLY REDACTED PUBLIC VERSION

30 

operations and reliance on third-party “jobber” foundries. As discussed at length above, 

McWane designed its exclusive dealing policy precisely to slow its rivals’ growth. See CX0076 

at 009 (noting that the program “[f]orces Star/Sigma to absorb the costs associated with having a 

more full line before they can secure major distribution”). And there is ample evidence that 

McWane’s program was effective in denying Star access to customers and thus impeding its 

ability to compete effectively. 

Moreover, McWane is incorrect to the extent it suggests it is immune from liability 

merely because Star was a less efficient competitor. The fundamental concern with monopoly 

maintenance is that dominant firms may adopt policies that prevent the development of effective 

competition. As the D.C. Circuit held in Microsoft, it is “inimical to the purpose of the Sherman 

Act to allow monopolists free reign to squash” emerging competitors before they have the 

opportunity to become capable rivals that could effectively challenge the monopolist. Microsoft, 

253 F.3d at 79; see also Andrew I. Gavil, Exclusionary Distribution Strategies by Dominant 

Firms: Striking a Better Balance, 72 Antitrust L.J. 3, 59-60 (2004) (while “the exclusion of the 

less efficient firm might not have harmed competition at that precise moment because the rival 

had yet to reach its potential, . . . Section 2’s horizon should not be so clipped if it is to function 

as an adequate deterrent to strategic behavior that impairs long-run competition”). 

3. McWane’s Procompetitive Justifications for the Full Support 

Program

Complaint Counsel has demonstrated harm to competition here, shifting the burden to 

McWane to show that the challenged conduct “promotes a sufficiently pro-competitive 

objective.” Dentsply, 399 F.3d at 196. Cognizable justifications are typically those that reduce 

cost, increase output or improve product quality, service, or innovation. See FTC v. Indiana 

Fed’n of Dentists, 476 U.S. 447, 459 (procompetitive justifications include “creation of 

efficiencies in the operation of a market or the provision of goods and services”); Broadcast 

Music, Inc. v. Columbia Broadcasting Sys., Inc., 441 U.S. 1, 19-20 (1979) (courts should 

consider whether the challenged practice is likely to “increase economic efficiency and render 

markets more, rather than less, competitive”) (internal quotations omitted); Data Gen. Corp. v. 

Grumman Sys. Support Corp., 36 F.3d 1147-1183 (1st Cir. 1994) (“In general, a business 

justification is valid if it relates directly or indirectly to consumer welfare.”). 

McWane offers two justifications for its conduct. It argues first that it engaged in 

exclusive dealing to preserve sales in order to generate sufficient volume to operate its last 

domestic foundry. While preserving sales volume to continue to operate a foundry may have 

been a significant business objective, it is not a cognizable procompetitive justification for 

antitrust purposes. See Microsoft Corp., 253 F.3d at 71-72 (explaining that the desire to increase 

sales “is not an unlawful end, but neither is it a procompetitive justification”). As the ALJ 

recognized, McWane’s sales goal provides benefits for McWane, but “Respondent has proffered 

no explanation as to how its Full Support Program benefits consumers.” ID at 415. 

Significantly, the measures that McWane took to preserve its sales volume were not the 

type of steps, such as a price reduction, that typically promote consumer welfare by increasing 

overall market output. Indeed, McWane considered the impact of lowering its domestic fittings 

pricing “to defend [its] near 100% share position,” but ultimately determined that lowering 
PROVISIONALLY REDACTED PUBLIC VERSION

31 

pricing would hurt margins. CX0465 at 004. Instead, the sales gained for production by 

McWane’s exclusive-dealing arrangement were sales taken from Star by virtue of the increased 

costs imposed by the Full Support Program. That is, McWane’s sales did not result from lower 

prices, improved service or quality, or other consumer benefits; instead, McWane’s sales 

stemmed from anticompetitive reductions in Star’s output. Sales so gained are not cognizable as 

procompetitive justifications. See Horizontal Merger Guidelines § 10 (“Cognizable 

efficiencies . . . do not arise from anticompetitive reductions in output or service.”); cf. NCAA v. 

Bd. of Regents, 468 U.S. 85, 116-17 (1984) (holding that a defendant could not justify curbing 

access to a more-desired product to induce consumers to purchase larger amounts of a lessdesired product); In re Polygram Holding, Inc., 136 F.T.C. 310, 345-46 (2003) (“[C]ognizability 

. . . allows the deciding tribunal to reject proffered justifications that, as a matter of law, are 

incompatible with the goal of antitrust law to further competition.”), aff’d, 416 F.3d 29 (D.C. Cir. 

2005). 

Furthermore, contemporaneous evidence belies McWane’s contention that its exclusive 

dealing policies were motivated by a desire to gain volume in order to preserve operations at 

McWane’s domestic foundry. Although that justification shows up in testimony from McWane 

witnesses, McWane’s contemporaneous planning documents from 2009 demonstrate that the 

objectives were almost exclusively to maintain domestic prices and profitability, deny Star 

critical mass, and prevent Star from becoming an effective competitor. See IDF 1149 (quoting 

CX0074 at 001) (“Whether we end up with Star as a complete or incomplete domestic supplier 

my chief concern is that the domestic market gets creamed from a pricing standpoint just like the 

non-domestic market has been driven down in the past.”), 1151 (citing CX 0102 at 002 (2010 

budget describing “biggest risk factor” as the “[e]rosion of domestic pricing if Star emerges as a 

legitimate competitor”)), 1158 (citing CX0076 at 009) (explaining that a disadvantage of not 

adopting exclusive dealing was that it would allow Star to “drive profitability out of our 

business”), 1150 (quoting CX0074 at 001) (“I agree that at this stage the chance for profitable 

cohabitation with Star owning a [piece] of the Domestic market is slim . . . we need to make sure 

that they don’t reach any critical market mass that will allow them to continue to invest and 

receive a profitable return.”).

McWane also argues that the Full Support Program prevents customers from cherrypicking the highest selling items from Star and persuades them to support McWane’s full line of 

domestic fittings. Here too McWane fails to identify the benefit to consumers.15

In support of McWane’s claim, its expert, Dr. Normann, explains that a full-line 

manufacturer incurs the costs of producing all fitting types and is able to bear these costs because 

it captures the benefit of scale economies arising from production of the most common fittings. 

According to Dr. Normann, a manufacturer that produces only the common fittings could avoid 

the cost of producing a full line and consequently could sell the common fittings at lower prices. 

 

15 Although preventing dealer or competitor free riding on manufacturer-supplied investments is 

commonly proffered as a procompetitive justification for exclusive dealing, there is no showing that is the 

case here. Indeed, the absence of evidence of exclusive dealing arrangements for sales of imported 

fittings belies such an argument. 
PROVISIONALLY REDACTED PUBLIC VERSION

32 

If distributors were able to source from multiple manufacturers, he reasons, they would buy the 

common fittings from the limited supplier (at lower prices) and turn to the full-line supplier for 

less common products only, which could lead to the collapse of the full-line seller. See RX712A 

at 056. 

This argument is unpersuasive. If a limited supplier undersells a full-line supplier for 

more common products, there is no reason in principle why the full-line supplier could not 

compete for that business by lowering its price for those products and increasing its price for the 

less common products. McWane offers no reason why supply would not be forthcoming to meet 

demand at a higher price, and we cannot conclude that consumers are necessarily worse off 

because less common fittings are sold for higher prices, when simultaneously, more common 

fittings are sold at lower prices. Even if selective entry by the full-line supplier’s rivals led to the 

collapse of the full-line seller, that itself would not constitute a harm to the market (as opposed to 

harm to a single firm). Courts have long rejected claims that “because of the special 

characteristics of a particular industry, monopolistic arrangements will better promote trade and 

commerce than competition,” Nat’l Soc’y of Prof’l Eng’rs v. United States, 435 U.S. 679, 689 

(1978), concluding instead that “[t]he Sherman Act reflects a legislative judgment that ultimately 

competition” will produce the best results. Id. at 695-96 (also noting that “the Rule of Reason 

does not support a defense based on the assumption that competition itself is unreasonable”). 

McWane’s claim is not consonant with this core judgment of the Sherman Act, and it is 

inconsistent with the basic objectives of Section 2.16 

VI. THE MASTER DISTRIBUTION AGREEMENT AS A RESTRAINT OF TRADE

We now turn to the charge that McWane and Sigma unreasonably restrained trade in the 

domestic fittings market in violation of Section 5 of the FTC Act by entering into the MDA. 

According to Complaint Counsel, McWane saw that Sigma was preparing to enter the domestic 

fittings market and sought to eliminate the risk of competition by inducing Sigma to become an 

exclusive distributor of McWane’s domestic fittings. 

Complaint Counsel’s claim, based on Section 1 of the Sherman Act, requires that there be 

a contract, combination, or conspiracy among two or more entities that unreasonably restrains 

trade. Realcomp II, Ltd. v. FTC, 635 F.3d 815, 824 (6th Cir. 2011). Here, there is no question 

that there was an agreement. The dispute is over the agreement’s lawfulness. Complaint 

Counsel asserts two theories of liability. Their main contention is that, without the MDA, Sigma 

would have entered the market independently and competed against McWane. In Complaint 

Counsel’s view, the MDA amounted to an agreement that Sigma would cede the domestic 

fittings market to McWane. Complaint ¶¶ 47-55, 67. Complaint Counsel argues in the 

 

16 As noted above, the Commission dismisses Count 7 of the Complaint, alleging attempted 

monopolization based on McWane’s exclusive dealing requirements. In view of our conclusion that 

McWane unlawfully monopolized the domestic fittings market through the same conduct, it is 

unnecessary to ask whether McWane attempted to monopolize the market. Accordingly, we do not reach 

this issue, and do not adopt the ALJ’s analysis. See Spectrum Sports, 506 U.S. at 451-53, 460-61. 
PROVISIONALLY REDACTED PUBLIC VERSION 

33 

alternative that the MDA was an unreasonable vertical restraint of trade. We find there is no 

violation under either theory. 

A. THE MDA WAS NOT A MARKET ALLOCATION AGREEMENT

Under Section 1 of the Sherman Act, an agreement among competitors to allocate 

markets is per se illegal. See Palmer v. BRG of Georgia, Inc., 498 U.S. 46, 49 (1990) (per 

curiam); United States v. Topco Assocs., 405 U.S. 596, 608-09 (1972). Likewise, naked 

agreements “not to compete among potential competitors are also illegal per se.” Transource 

Int’l, Inc. v. Trinity Indus., 725 F.2d 274, 280 (5th Cir. 1984); see also Engine Specialties, Inc. v. 

Bombardier, Ltd., 605 F.2d 1, 9-11 (1st Cir. 1979) (finding a market allocation agreement 

between potential competitors per se unlawful). Complaint Counsel’s Section 1 theory is 

premised on Sigma being a potential competitor in the domestic fittings market. Accordingly, 

we must first determine if, but for the MDA, Sigma was sufficiently likely to enter the domestic 

fittings market to be considered a potential competitor of McWane. 

In evaluating this question, we look to whether Sigma had “the necessary desire, intent, 

and capability to enter the market.” Bombardier, 605 F.2d at 9. The ultimate issue is whether 

Sigma’s entry was reasonably probable in the absence of the MDA. See Fed. Trade Comm’n & 

Dep’t of Justice, Antitrust Guidelines for Collaborations Among Competitors § 1.1 n.6 (2000) 

(“A firm is treated as a potential competitor if there is evidence that entry by that firm is 

reasonably probable in the absence of the relevant agreement.”) (“Competitor Collaboration 

Guidelines”); cf. Yamaha Motor Co. v. FTC, 657 F.2d 971, 977 (8th Cir. 1981) (evaluating, in a 

Clayton Act Section 7 case, whether, absent the joint venture, the merging party “probably” 

would have entered). We agree with the ALJ that Sigma’s entry was not reasonably probable. 

As explained above, Sigma began investigating two potential avenues for entry into the 

domestic fittings market following the passage of the ARRA in February 2009: (1) purchasing 

domestic fittings from McWane; and (2) producing domestic fittings by contracting with 

independent domestic foundries (a “virtual manufacturing” model). Rona, Tr. 1630; Pais, 

Tr. 1752; IDF 1423-24. In April, Sigma approached McWane about obtaining private label 

fittings but was dissatisfied with McWane’s initial offer, which was insufficient to cover Sigma’s 

operating costs. IDF 1425, 1443-45. After rejecting McWane’s first offer, Sigma President and 

CEO Mr. Pais wrote: “We now need to go all out and implement a SDP [Sigma Domestic 

Production] plan – replicating SIGMA’s ‘virtual manufacturing’ model . . . just as we do thru a 

collection of facilities overseas.” IDF 1455. Before long, however, Sigma approached McWane 

to resume discussions about a possible distribution arrangement. IDF 1522. Ultimately, Sigma 

decided to forgo independent entry and chose instead to purchase domestic fittings from 

McWane pursuant to the MDA. 

Complaint Counsel points to troubling evidence showing that McWane believed Sigma 

was likely to enter the domestic fittings market independently, and that McWane entered the 

MDA in order to eliminate that possibility. For example, an internal McWane memorandum, 

dated May 26, 2009, concludes that McWane’s decision to sell domestic fittings to Sigma 

“probably comes down to . . . [h]ow legitimate of a risk is there with a competitor successfully 

introducing a Domestic product line?” CX0067 at 002, 004. In addition, Mr. Tatman and 

Mr. McCullough referred to the MDA as an “insurance policy” against potential Sigma entry. 
PROVISIONALLY REDACTED PUBLIC VERSION 

34 

CX2353 at 004; CX1184 at 001. The evidence also indicates that McWane believed selling 

domestic fittings to Sigma would “help drive some additional level of price stability.” CX 0465 

at 002, 010. Yet other evidence shows that McWane harbored doubts as to Sigma’s capabilities. 

For example, McWane’s Vice President and General Manager, Mr. Tatman, sent an internal 

email to both of his bosses, Mr. McCullough and Mr. Walton, on August 18, 2009, explaining 

that he was “leaning towards not throwing too much [money]” at what he referred to as an 

“insurance policy” against Sigma’s entry, noting that he is “not picking up any strong sense that 

they have a strong alternate path at this point that they’d be willing to invest significant $ into.” 

CX1184 at 001; Tatman, Tr. 771-72, 783-85. 

In fact, Sigma did take various preliminary steps to explore the viability of its virtual 

manufacturing plan. This included assembling a team of executives responsible for evaluating 

entry. The team considered domestic foundries’ costs and capabilities, as well as the time it 

would take for Sigma to start production. IDF 1447. They investigated all aspects of the 

necessary processing steps and concluded that Sigma would need to offer approximately 730 

different types of domestic fittings in order to be an effective competitor. IDF 1468. 

As described by Mr. Pais, however, the plan never went beyond “the early stages.” Pais, 

Tr. 1761-62. As of mid-2009, Sigma had “[n]o contracts with any foundries,” only a couple of 

patterns borrowed from Sigma’s Mexico supplier, no core boxes, no machining facilities, and no 

contract to complete the coating, painting, or lining. Pais, Tr. 2173-74. All of these are essential 

prerequisites for the production of fittings. IDF 1046-47. In August, Sigma informed its 

customer, U.S. Pipe, that Sigma had “not made any concrete plans to either invest in all the 

required tooling or not invest at all.” IDF 1467. By the end of the summer, Sigma had a 

domestic foundry produce a couple of sample fittings, but the foundry was not prepared to do the 

machining, painting, or cement lining. Pais, Tr. 1803; IDF 1461, 1465. As of September, Sigma 

only had a small number of the needed patterns, and it did not have contracts with any pattern 

shops or domestic foundries. IDF 1470-72; Rona, Tr. 1672, 1674-76. 

As a whole, Sigma’s actions relating to the virtual manufacturing plan were merely 

exploratory and preliminary and certainly not those of a “reasonably probable” entrant. It 

invested no more than $50,000 to $75,000 toward the effort, a nominal sum when compared to 

Sigma’s estimate that it would need $5 to $10 million to enter the domestic fittings market. 

IDF 1449, 1479-80. 

Importantly, Sigma found itself facing significant financial challenges just as it was 

pursuing the idea of entering the domestic fittings market. Sigma’s financial resources had been 

greatly strained by the economic downturn in 2008. At the end of 2008, Sigma had suffered a 

loss of , had only in cash, and was over in debt. 

IDF 1482, 1490-91, in camera; Pais, Tr. 2190, in camera. Sigma began 2009 with a large 

portion of its debt unsecured and subject to high interest rates, and it remained in a financially 

“precarious” position throughout the year. IDF 1483, 1489, 1493-94; ID at 426. In May 2009, 

Sigma’s internal midterm review revealed that Sigma’s financial situation was “bleak.” IDF 

1484; CX0214 at 002; Pais, Tr. 2163-64. By June, after the outlook continued to worsen, 

conditions reached a point where Mr. Pais presented Sigma’s Board of Directors with an “SOS” 

plan to save Sigma. IDF 1496. With sales down , and despite laying off 
PROVISIONALLY REDACTED PUBLIC VERSION 

35 

employees and making substantial cuts, Sigma ended 2009 breaching some of its bank 

covenants. IDF 1485, in camera, 1486-88. 

Not surprisingly given Sigma’s financial condition, its lenders imposed very low capital 

spending limits on the company in 2009. IDF 1499. During Sigma’s July 2009 Board meeting, 

the Frontenac Group, a private equity firm with a 60 percent ownership interest in Sigma, opined 

that Sigma did not have the capability to invest in domestic fittings and declared that Frontenac 

would not finance Sigma’s domestic production plan. IDF 1500-01. Against this backdrop, 

Sigma’s ability to make an investment of $5 to $10 million to enter the domestic fittings market 

independently seems questionable at best. 

Complaint Counsel nonetheless argues that all of this is outweighed by an e-mail from 

Walter Florence of Frontenac to Mr. Pais and other Sigma executives on July 27, twelve days 

after the July Board meeting, outlining proposals for various upcoming banking group meetings. 

In the context of discussing how Sigma could best pitch ideas to potential lenders, the e-mail 

states: “Investors and rollover shareholders are prepared to invest up to $7.5m in equity . . . to 

fund domestic sourcing initiative and to fund the Strategic business additions which will enhance 

credit quality and help Sigma grow and build equity value.” CX0099 at 007. According to 

Complaint Counsel, this e-mail demonstrates that Sigma would have been able to obtain 

financial backing to expand into domestic fittings. 

We find the cited statement much more ambiguous, particularly when considered in light 

of the position taken by Frontenac at the Board meeting less than two weeks prior and the other 

substantial evidence of Sigma’s financial struggles. Indeed, Mr. Pais’s July 28 response to 

Mr. Florence is in line with all of the other evidence of Sigma’s difficult financial situation. In 

his reply, Mr. Pais revealed a “setback” that the company had “just unearthed last evening, with 

a significant unfavorable variation in [Sigma’s] EBITDA projections – of as much as even 

$2M – from the CORE business for 09 and possibly 2010, as compared to those projections 

presented @ the BOD meeting in Boston.” CX0099 at 004 (emphasis in the original). As 

described by Mr. Pais, “heading into this bank meeting, [Sigma was] actually in an even worse 

position than [initially] believed.” Pais, Tr. 2181. 

In sum, the evidence shows that Sigma took only the most preliminary acts to enter the 

market on its own and that it lacked the financial means necessary to get its virtual 

manufacturing underway. By September 2009, Sigma’s President and CEO recognized that it 

could not overcome the complexity of entering the domestic fittings market. Pais, Tr. 1801-04. 

Finding “no other option” for serving the domestic fittings market, Sigma turned to McWane. 

Pais, Tr. 1800-01. Accordingly, we do not find there was a reasonable probability that Sigma 

would have been McWane’s competitor in the domestic fittings market.17 See Transource Int’l, 

 

17 Citing Microsoft, Complaint Counsel contends that, even if Sigma does not qualify as a potential 

competitor, the actions taken by McWane to eliminate the possibility of competition from a “nascent” 

entrant should nevertheless serve as prima facie evidence of anticompetitive conduct. See Microsoft, 253 

F.3d at 79. In appropriate cases we will condemn anticompetitive activity, whether in the form of 

unreasonable restraints of trade or monopolization, that targets potential competition, as set forth in the 

Competitor Collaboration Guidelines at § 1.1 n.6 (2000), Transource Int’l, 725 F.2d at 280, and 
PROVISIONALLY REDACTED PUBLIC VERSION 

36 

725 F.2d at 280 (finding that Transource lacked the financial ability to enter the market and had 

previous failures in manufacturing for a similar line of business); Conergy AG v. MEMC Elec. 

Materials, Inc., 651 F. Supp. 2d 51, 57-58 (S.D.N.Y. 2009) (considering, on a motion to dismiss, 

plaintiff’s background and experience in the industry, its affirmative acts to enter, its financial 

capabilities, and the contracts in place). It therefore follows that the MDA is not an unlawful 

horizontal agreement. 

B. THE MDA WAS NOT AN UNREASONABLE VERTICAL RESTRAINT OF TRADE 

Having concluded that Sigma was not a potential competitor of McWane, we now 

consider whether certain provisions in the MDA amounted to an unreasonable vertical restraint 

under the rule of reason. See Leegin Creative Leather Prods. v. PSKS, Inc., 551 U.S. 877, 898 

(2007) (holding that vertical restraints are analyzed under the rule of reason); Transource Int’l, 

725 F.2d at 280 (analyzing the alleged restraint under the rule of reason after concluding that the 

relationship between the two firms was vertical rather than horizontal). Courts typically accord 

less scrutiny to vertical restraints than to horizontal restraints. See Leegin, 551 U.S. at 888 

(noting that recent precedent recognizes the difference in economic effect between horizontal 

and vertical agreements); Arizona v. Maricopa County Med. Soc’y, 457 U.S. 332, 348 n.18 

(1982) (noting that “horizontal restraints are generally less defensible than vertical restraints”). 

In assessing the lawfulness of a vertical restraint, we look to the “the restraint’s history, nature, 

and effect,” recognizing that a manufacturer with market power might use the restraint to 

facilitate collusion with its competitors or exclude new entrants or smaller rivals. See Leegin, 

551 U.S. at 885-86, 893-94. 

Complaint Counsel challenges three aspects of the MDA: (1) the fact that the MDA 

anointed McWane as Sigma’s sole source of domestic supply and precluded Sigma from 

producing its own domestic fittings; (2) that it prescribed the minimum price at which Sigma 

could sell domestic fittings in competition with McWane; and (3) that it required Sigma to 

adhere to McWane’s Full Support Program. 

The ALJ centered his rule of reason analysis and finding of liability on the MDA’s sole 

source and pricing provisions. He found that these terms were unnecessary for McWane to sell 

domestic fittings to Sigma and concluded that the availability of reasonable, less restrictive 

alternatives and the absence of procompetitive justifications rendered the MDA an unreasonable 

restraint of trade. ID at 433. We disagree with the ALJ’s reasoning. 

To the extent that the Initial Decision purports to find a violation because the terms were 

unnecessary or because McWane could have structured the MDA less restrictively, the analysis 

is flawed. The rule of reason first requires a basis for finding conduct anticompetitive. Only 

after there has been such a finding do courts consider whether there are less restrictive 

alternatives. See Care Heating & Cooling, Inc. v. Am. Standard, Inc., 427 F.3d 1008, 1012 (6th 

Cir. 2005) (explaining that, under Section 1 rule of reason burden-shifting analysis, plaintiff 

 

and Bombardier, 605 F.2d at 9-11, or nascent competition, as set forth in Microsoft, 253 F.3d at 53-54, 

79. We find the facts here to be distinguishable from the nascent competition at issue in Microsoft. 
PROVISIONALLY REDACTED PUBLIC VERSION

37 

bears the initial burden of showing the challenged restraint caused anticompetitive harm; the 

burden then shifts back to defendant to provide procompetitive justifications for the conduct, 

which, if met, allows plaintiff to provide evidence that any legitimate objectives can be achieved 

in a less restrictive manner); Tanaka v. Univ. of S. Cal., 252 F.3d 1059, 1063 (9th Cir. 2001) 

(same); see also Hovenkamp, XI Antitrust Law ¶ 1913c, at 376 (“[A] showing of possible less 

restrictive alternatives is part of the ‘burden shifting’ procedure that goes on in a rule of reason 

case and is required only if the preceding inquiries warrant it . . . . That is, the availability of a 

purported less restrictive alternative does not make a challenged practice effectively illegal per 

se.”). 

The initial question, therefore, is whether the MDA, in place less than a year, caused 

anticompetitive harm. We begin with the sole source requirement, which prohibited Sigma from 

producing its own domestic fittings and barred Sigma from purchasing from Star. In light of our 

finding that Sigma was not a probable entrant in the domestic fittings market, we conclude that 

the prohibition against Sigma producing domestic fittings was unlikely to have had an 

anticompetitive effect. 

We reach the same conclusion with respect to the MDA’s pricing provisions. Although 

McWane had monopoly power in the domestic fittings market, Sigma was only one of many 

McWane distributors and it had a limited market presence in that market. IDF 1597. Indeed, 

there is no evidence in the record that the price restraint placed on Sigma had or was likely to 

have market-wide effects. 

Finally, the MDA also prohibited Sigma from selling McWane’s domestic fittings to any 

customers who bought from Star. To the extent there was any anticompetitive consequence 

resulting from this provision, we have already condemned McWane’s conduct in connection 

with the Full Support Program in our discussion of Count 6, and there is no evidence that this 

provision materially added to the adverse competitive effects of the Full Support Program. 

We therefore conclude that Complaint Counsel failed to establish that the MDA had or 

was likely to have anticompetitive effects in the domestic fittings market, apart from those 

already condemned. Accordingly, we reverse the ALJ’s holding of liability on Count 4.18

VII. THE ALLEGED AGREEMENT TO CURTAIL PROJECT PRICING

Complaint Counsel alleges a conspiracy, initiated by McWane, to stabilize and raise 

fittings prices through two allegedly unlawful agreements. According to Complaint Counsel, in 

 

18 We also dismiss Count 5, which alleges that by enlisting the assistance of Sigma in enforcing 

McWane’s exclusive dealing program against Star, McWane and Sigma conspired to monopolize the 

domestic fittings market. We find this count subsumed by our resolution of Counts 4 and 6. See 

Phillip E. Areeda & Herbert Hovenkamp, IIIB Antitrust Law ¶ 809, at 463-67 (3d ed. 2008) (noting the 

redundancy between a claim of conspiracy to monopolize and Section 1 claim); see also Int’l Distrib. 

Centers v. Walsh Trucking Co., 812 F.2d 786, 795-96 (2d Cir. 1987) (holding that establishing a 

conspiracy to monopolize claim requires largely the same proof as an unreasonable restraint of trade 

claim under Section 1).
PROVISIONALLY REDACTED PUBLIC VERSION

38 

early 2008 McWane agreed with Star and Sigma to curtail project pricing, the major form of 

discounting in the industry, and later to raise its list prices in return for participation by Star and 

Sigma in the DIFRA information exchange. 

On appeal, Complaint Counsel focuses on the first of the claimed agreements—the 

agreement to curtail project pricing. They point to a variety of circumstantial evidence from 

which they infer a price conspiracy, orchestrated by McWane through price signaling and other 

communications with Sigma and Star, designed to curtail project pricing and stabilize prices. 

Complaint Counsel contends the ALJ erred in a number of important respects, including that he: 

“failed to make reasonable inferences . . . and instead demanded direct proof of an agreement 

before any inference could be made,” CCRB at 2; “improperly ignored evidence that Sigma and 

Star participated in the price-fixing conspiracy,” CCAppB at 9; and failed to evaluate the 

evidence as a whole,” instead “dissect[ing] each piece of the evidentiary puzzle, asking whether 

it alone made collusion more likely than not.” Id. at 11. 

McWane defends the ALJ’s conclusion that “‘[t]he totality of the evidence, given due 

weight and viewed as a whole, fails to demonstrate that [it], together with Sigma and Star, had an 

agreement’” or “‘engaged in parallel conduct by curtailing Project Pricing’” and thus was “not 

consistent with the alleged conspiracy.’” RAnsB at 3 (quoting ID at 317-18, 350). In particular, 

McWane argues there were numerous project pricing episodes in 2008. Distinguishing between 

an unlawful agreement and independent action or conscious parallelism is often difficult, 

especially in contexts involving oligopolists. See, e.g., In re Flat Glass Antitrust Litig., 385 F.3d 

350, 356-61 (3d Cir. 2009). 

The Commission has not reached a majority as to liability on Count 1. Chairwoman 

Ramirez and Commissioner Brill find, by a preponderance of the evidence, that McWane, 

Sigma, and Star engaged in concerted action in violation of the law. Commissioners Ohlhausen 

and Wright, on the other hand, find the evidence insufficient to establish a conspiracy. In the 

absence of a majority decision, we dismiss Count 1 in the public interest.19 

VIII. THE DIFRA INFORMATION EXCHANGE

Finally, Complaint Counsel also alleges that McWane conspired with Star and Sigma to 

exchange competitively sensitive sales information through DIFRA. They argue that this 

information enabled each of them “to determine and to monitor its own market share and, 

indirectly, the output levels of its rivals,” thereby facilitating price collusion in a market already 

susceptible to pricing coordination, with no countervailing procompetitive justification. 

Complaint ¶¶ 35-36. 

On appeal, Complaint Counsel points to evidence indicating that McWane, Sigma, and 

Star expected the DIFRA information exchange to allow them to better detect cheating and to 

 

19 Where no majority decision is reached on a claim or cause of action, the Commission may exercise its 

discretion to dismiss it. See In re Ticor Title Ins. Co., 112 F.T.C. 344, 442 n.13 (1989); In re Am. 

Cyanamid, 72 F.T.C. 623, 690 (1967). 
PROVISIONALLY REDACTED PUBLIC VERSION 

39 

stabilize prices and argues that the ALJ erred by “requiring direct evidence of actual price effects 

and ignoring evidence that the principal tendency of DIFRA was to facilitate collusion.” 

CCAppB at 44. Specifically, Complaint Counsel argues that “the DIFRA exchange allowed 

each participant to monitor its own market share, and to deduce from monthly changes in that 

share, its rivals’ relative price levels.” Id. at 45. Emphasizing that the information exchanged 

was historical, aggregated data, McWane defends the ALJ’s determination that “the evidence 

fails to prove that the DIFRA tons-shipped data reporting system has the nature and tendency to 

facilitate price coordination.” ID at 362. 

The Commission has not reached a majority as to liability on Count 2. Chairwoman 

Ramirez and Commissioner Brill find, by a preponderance of the evidence, that the DIFRA 

information exchange constituted an unlawful facilitating practice under a rule of reason 

analysis. Commissioners Ohlhausen and Wright, on the other hand, find the evidence 

insufficient to establish a violation of the rule of reason. Lacking a majority position, we dismiss 

Count 2 in the public interest. 

IX. REMEDY 

The Commission has considerable discretion in fashioning an appropriate remedial order, 

so long as the relief bears a reasonable relationship to the act or practice found unlawful. See 

FTC v. Ruberoid Co, 343 U.S. 470, 473 (1952); Rubbermaid, Inc. v. FTC, 575 F.2d 1169, 1174 

(6th Cir. 1978). Having determined that McWane sought to maintain its monopoly power in the 

domestic fittings market through an unlawful exclusive dealing policy, we issue the attached 

order, which prohibits McWane from requiring exclusivity from its customers. 

McWane objects to the remedy as moot, arguing that its exclusive dealing policy ended 

over two years ago and that the ALJ did not find any ongoing impact or threat of recurrence. In 

particular, McWane asserts that it modified its Full Support Program by January 2010, 

eliminating the provision stating that distributors risked losing shipments for up to 12 weeks if 

they did not support the program. It also notes that ARRA, which provided the initial impetus 

for the policy, is no longer in force. Under these circumstances, McWane argues, injunctive 

relief is unwarranted. We disagree. 

First, it is well-established that the Commission may issue a cease and desist order even 

when a respondent no longer engages in the illegal conduct if there is sufficient danger of 

recurrence. See W.M.R. Watch Case Corp. v. FTC, 343 F.2d 302, 304 (D.C. Cir. 1965); see also 

In re The Coca-Cola Co., 117 F.T.C. 795, 1994 FTC LEXIS 327, at *199 (1994) (“Voluntary 

cessation of unlawful activity is not a basis for halting a law enforcement action.”). Thus, even 

assuming that McWane’s Full Support Program ended over two years ago, that in itself does not 

bar a remedial order in this case. 

More importantly, we are not persuaded that McWane has in fact ended its exclusive 

dealing policy. McWane has not publicly withdrawn the policy or notified distributors of any 

changes. See Tatman, Tr. 707-09 (asserting that the program was modified in January 2010, but 

that he never sent a letter to his customers to that effect). Whatever McWane may have decided 

internally, it failed to communicate a withdrawal of its policy to its distributors, and there is 

testimony from distributors who regard the exclusive dealing requirement as still in effect. See
PROVISIONALLY REDACTED PUBLIC VERSION 

40 

Thees, Tr. 3118 (Ferguson) (testifying that as far as he is aware, McWane never rescinded the 

policy or indicated that it was no longer in force); Morton, Tr. 2908-09, 2911 (U.S. Pipe) 

(testifying that no one from McWane communicated that the policy had been withdrawn or 

revised); Pitts, Tr. 3364-65 (Hajoca) (testifying that as far as he is aware, McWane never 

withdrew its policy); Sheley, Tr. 3419 (Illinois Meter) (stating that, as a result of McWane’s 

policy, Illinois Meter still does not purchase domestic fittings from Star); Webb, Tr. 2770 (HD 

Supply) (testifying that an exclusive dealing policy remains in place). As the court explained in 

Rubbermaid, “The crucial question . . . is to what degree one can be certain that the same or 

related practices will not recur.” 575 F.2d at 1172. Here, the record contains no public 

communication of a withdrawal and reflects distributor concern that the exclusive dealing policy 

has continued, which poses an even greater danger than a risk of recurrence. 

Third, the fact that ARRA is no longer in effect is irrelevant. See Rubbermaid, 575 F.2d 

at 1171-73 (rejecting defendant’s mootness claim based on repeal of legislation and 

discontinuance of the practice at issue). While ARRA may have provided the initial impetus for 

Star’s entry into the domestic fittings market, other “Buy American” laws and buyer preferences 

remain, and McWane continues to have monopoly power in that market. Executives at the 

highest level of McWane’s organization developed and implemented an exclusive dealing policy 

to maintain monopoly prices, and all but one of those executives remain at McWane. See

IDF 20-38, 1145-92. Without an order, there is no reason to believe that McWane would not 

again attempt to protect its monopoly power in the domestic fittings market with exclusive 

dealing or other arrangements that have similar effects. See Rubbermaid, 575 F.2d at 1172 (“The 

Commission may be properly concerned not only with the open and formal implementation of 

agreements exactly like those entered into in the past, but also with the possibility that past 

unlawful conduct will be perpetuated in some more subtle form in the future.”) 

Finally, McWane argues that injunctive relief is only appropriate where the plaintiff 

shows there is an imminent threat of injury that is concrete and specific. The authority McWane 

relies on for this proposition, however, is inapposite. It speaks to Article III standing 

requirements and standards for injunctive relief in cases brought by private plaintiffs, rather than 

to the Commission’s remedial authority in exercise of its statutory law enforcement 

responsibilities.20

It is McWane that has the “formidable burden of showing that it is absolutely clear [its] 

allegedly wrongful behavior could not reasonably be expected to recur.” Friends of the Earth v. 

Laidlaw Envtl. Servs., Inc., 528 U.S. 167, 190 (1999); accord Rubbermaid, 575 F.2d at 1173 (“A 

company bears a heavy burden in showing that past conduct will not be repeated.”). As the ALJ 

correctly concluded, “Respondent has not met that burden here.” ID at 447. 

 

20 In Winter v. NRDC, 555 U.S. 7, 22 (2008), for instance, the Court clarified that a private party seeking a 

preliminary injunction must show the likelihood of irreparable injury rather than just the possibility. 

Similarly, in Summers v. Earth Island Inst., 555 U.S. 488, 493 (2009), and Los Angeles v. Lyons, 461 U.S. 

95, 101-10 (1983), the Court addressed the requirements for Article III standing and equitable relief 

applicable to private plaintiffs. These cases do not apply to the Commission. 
PROVISIONALLY REDACTED PUBLIC VERSION

41 

Accordingly, we issue the attached cease and desist order to address McWane’s 

exclusionary conduct. The order prohibits McWane from: (1) implementing or enforcing any 

condition, policy, or practice requiring exclusivity with a customer; (2) implementing or 

enforcing any retroactive rebate program that would effectively demand exclusivity; 

(3) “[d]iscriminating against, penalizing or otherwise retaliating” against any customer that 

purchases a competitor’s domestic fittings or that “otherwise refuses to enter into or continue any 

condition [or] agreement” requiring exclusivity; and (4) “enforcing any condition, requirement, 

policy, agreement, contract or understanding that is inconsistent with the terms of [the] Order.” 

Order, ¶¶ II.A.-D. The order is designed to bring an end to McWane’s unlawful conduct, rectify 

its past violation, and ensure it does not recur. It is necessary and appropriate to remedy 

McWane’s past and continuing competitive harm. 

X. CONCLUSION

For the foregoing reasons, the Commission concludes that McWane violated Section 5 of 

the FTC Act, 15 U.S.C. § 45, by adopting an unlawful exclusive dealing policy to maintain its 

monopoly power in the domestic fittings market. Consequently, we issue a Final Order to 

remedy McWane’s violation and prevent its recurrence. 

Date of Decision: January 30, 2014