Wednesday, October 24, 2007

Sandpaper Maker's Injury Was Result of Competitive Conduct

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

A company that "largely developed," but was later driven from, the market for do-it-yourself automotive sandpaper lacked standing to sue a competitor for engaging in monopolization by executing exclusive dealing contracts with four of the six largest distributors of such abrasives, according to an en banc decision of the U.S. Court of Appeals in Cincinnati.

The complaining firm held 67% of the market before it lost most of the market to its only competitor, as a result of the defending firm's up-front discounts and longer exclusive agreements. To allow the litigation to continue would have been to "allow one monopolist to sue a competitor for seizing its market position by charging less for its goods," according to the court. Dismissal of the antitrust claims (2006-2 Trade Cases ¶75,365) was affirmed.

The complaining company failed to establish a cognizable antitrust injury, because its injury flowed from the kind of competition that the antitrust laws were designed to foster, according to the court.

Competitive Tactics

Three of the defending firm's tactics were targeted: (1) the up-front payments offered to the four of the six major retailers; (2) the multi-year terms of the exclusive agreements with the retailers; and (3) the exclusive nature of these agreements. The court considered each and rejected the complaining firm's challenges.

The non-predatory discounts furthered the competition-enhancing goals of the antitrust laws, and the retailers insisted on such payments. With respect to the multi-year agreements, the defending firm did nothing more than compete on terms that the market already required, the court found. And while exclusive agreements in some instances might create impermissible barriers for new entrants to a market and might permit a supplier to charge monopoly prices, the complaining firm could not tenably claim that it suffered these anticompetitive effects.


A dissent expressing the views of four of the 13 judges nostalgically reflected back on a time "when monopoly was an evil targeted by Congress and guarded against by the antitrust laws of the United States." The dissent concluded that the majority read the antitrust laws too narrowly and "treat[ed] monopoly more as a board game than as an economic harm to the public."

The October 17 decision in NicSand, Inc. v. 3M Company, appears at 2007-2 Trade Cases ¶75,908.

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