Monday, October 29, 2007

Distributor Fails to Allege Antitrust Injury from Monopolization

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reports.

An aggregate distributor that was driven out of business lacked antitrust standing to sue its former supplier for monopolization, the U.S. Court of Appeals in New York City has ruled.

According to the complaining distributor, the defending supplier monopolized the market for manufacturing aggregate in the Long Island and the New York metropolitan area by buying out its only significant manufacturing competitor and then refusing to sell aggregate to the complaining firm. The defending supplier expanded vertically into the distribution level and ultimately purchased the complaining distributor's assets “at a sacrifice.” The complaint contended that the defending firm raised prices to customers soon after the sale. Dismissal for failure to allege an antitrust injury (2006-2 Trade Cases ¶75,452) was affirmed.

Anticompetitive Practices

The court outlined the defending supplier's alleged anticompetitive practices as: (1) acquisition of its only major competitor, resulting in a monopoly in the production of aggregate, followed by (2) vertical integration into the distribution level and refusal to deal with the complaining firm, leading to a second monopoly at the distribution level for the supplier. The distributor lacked antitrust standing to assert claims of monopolization at either the manufacturing level or the distribution level, the court ruled.

Power to Raise Prices

At the manufacturing level, the distributor’s injury was not caused by an exercise of the defending suppliers newly acquired power to raise prices for aggregate. Instead, the distributor’s injury was caused by the supplier’s decision to terminate their relationship, something the supplier could have done without monopoly power, in the court's view.

Refusal to Deal

Moreover, the distributor failed to allege any facts that would suggest that the supplier’s refusal to deal following its vertical expansion into distribution was for anticompetitive reasons. The supplier’s expansion into distribution was most likely in pursuit of increased efficiency. Thus, there was an apparent legitimate business reason for its refusal to deal. The supplier would have had no anticompetitive incentive to exclude the distributor because it already enjoyed a monopoly at the production level, the court explained.

The October 23 decision in Port Dock & Stone Corp. v. Oldcastle Northeast, Inc., 06-4908, will appear at 2007-2 Trade Cases ¶75,913.

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