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Chase Manufacturing, Inc. v. Johns Manville Corporation
In this antitrust case, the 10th Circuit Court of Appeals considered whether the district court erred in granting summary judgment to a monopolist — a company supplying nearly 100% of the relevant market — that had threatened to stop selling needed products to its customers if they bought from a new market entrant offering a superior product for less money, the 10th Circuit opinion noted.
For decades, Johns Manville Corp. was the sole domestic manufacturer and supplier of calcium silicate, a substance used to make thermal pipe insulation. According to the opinion, as a result, it had faced no competition in selling its calsil to thermal-pipe-insulation distributors around the United States. In March 2018, Chase Manufacturing, Inc. (Thermal Pipe Shields, Inc.) challenged Johns Manville Corp.’s monopoly status by entering the calsil market with a superior and less expensive product, according to the opinion. Johns Manville Corp. responded by threatening distributors it would not sell to them if they bought Thermal Pipe Shields’ competing calsil, the opinion added. By August 2021, more than three years after Thermal Pipe Shields’ market entry, Johns Manville Corp. retained over 97% of the domestic calsil market.
Thermal Pipe Shields sued under the Sherman Act, alleging Johns Manville Corp. had unlawfully maintained its monopoly and tied the availability of its insulation products to distributors’ not buying Thermal Pipe Shields’ calsil. The district court granted summary judgment for Johns Manville Corp. The 10th Circuit affirmed some of the district court’s rulings, but also held the court erred in finding no genuine issues of material fact on whether Johns Manville Corp. unlawfully maintained its monopoly after Thermal Pipe Shields’ market entry. The 10th Circuit reversed and remanded.
In March 2019, Thermal Pipe Shields sued Johns Manville Corp. In an amended complaint, Thermal Pipe Shields alleged Johns Manville Corp. had violated the Sherman Act’s prohibitions on monopolization and tying and Johns Manville Corp. had also violated 43(a) of the Lanham Act by disparaging Thermal Pipe Shields’ calsil. For its monopolization claim, Thermal Pipe Shields asserted four forms of Johns Manville Corp.’s exclusionary conduct: threatening to refuse to supply distributors with calsil, exclusive dealing through rebates, disparaging Thermal Pipe Shields’ calsil and tying calsil to its non-calsil products.
To support its Sherman Act claims, Thermal Pipe Shields relied on expert opinions from Dr. Frederick Warren-Boulton, an economist with expertise in vertical restraints on trade. Reviewing Johns Manville Corp.’s sales data from 2016 to August 2021, Warren-Boulton opined Johns Manville Corp. had maintained its monopoly power in the domestic calsil market for more than three years after Thermal Pipe Shields’ market entry. He reported Johns Manville Corp. enjoyed much higher gross margins on calsil compared to its other thermal-insulation products. And Warren-Boultonreported the same for Johns Manville Corp.’s domestic calsil sales as compared to Johns Manville Corp.’s international calsil sales.
Warren-Boulton also opined Johns Manville Corp. “has sufficient economic power over its distributors and other direct customers in the US” to impede Thermal Pipe Shields’ market growth. Warren-Boultonnoted, for example, distributors chose Johns Manville Corp.’s calsil despite “earn[ing] significantly higher [profits] on calsil purchased from Thermal Pipe Shields than on calsil purchased from Johns Manville.” Warren-Boulton also opined Thermal Pipe Shields should’ve enjoyed a larger market share of the domestic calsil market, noting “[e]conomic theory predicts that, in a market with two firms with identical marginal costs selling a homogenous good such as calsil, the firms will each have a market share of 50%.”
The district court denied Johns Manville Corp.’s motion to exclude Warren-Boulton’s expert testimony. But it later granted Johns Manville Corp.’s summary-judgment motion, the opinion noted, citing the decision Chase Mfg., Inc. v. Johns Manville Corp. The district court ruled Thermal Pipe Shields hadn’t raised a genuine issue of material fact in support of its Sherman Act monopolization and tying claims.
First, the district court relied on the refusal-to-deal-with-rivals standard to analyze Thermal Pipe Shields’ claim of threats not to supply distributors. The district court required Thermal Pipe Shields to show “a distributor suffered actual negative repercussions and harm as a result of a purchase of [TPS’s] calsil” and “[JM] suffered self-inflicted harm” in the short term by losing calsil sales to distributors. As the district court saw it, Thermal Pipe Shields couldn’t raise a genuine issue of material fact over lost sales because “[w]hen [JM] did threaten to (or actually did) stop selling calsil to a distributor, it occurred in those markets where [it] could shift that business to another local distributor.”
Second, the district court rejected Thermal Pipe Shields’ exclusive-dealing claim that TPS based on Johns Manville Corp.’s rebate agreements with distributors. The court concluded Thermal Pipe Shields “d[id] not demonstrate how the rebate scheme goes beyond permissible price competition to unlawful coercion.” The district court ruled Thermal Pipe Shields had raised no genuine issue of material fact of any “exclusive dealing arrangement whereby [JM] expressly prohibited distributors from doing business with [TPS]” or of any “coercive effect” to support a de facto exclusive-dealing claim.
Third, the district court rejected Thermal Pipe Shields’ disparagement claim, concluding Thermal Pipe Shields had raised no genuine issue of material fact about whether “the [disparaging] statements played a significant role in dissuading a distributor from buying [TPS’s] calsil.” For instance, the district court noted Thermal Pipe Shields hadn’t raised a genuine issue of material fact about how the disparaging statements were “clearly false.”
Fourth, the court concluded Thermal Pipe Shields had raised no genuine issue of material fact in support of its tying claims under the Sherman Act. It reasoned Thermal Pipe Shields hadn’t “demonstrate[d] how [JM] wielded market power over” its non-calsil products. The district court further faulted Thermal Pipe Shields for failing to show “some sort of arrangement to tie sales of different insulating materials together.”
The 10th Circuit reviewed de novo rulings on summary judgment, using the same standard that applied in the district court, the opinion noted, citing the 10th Circuit decision N.M. Oncology & Hematology Consultants, Ltd. v. Presbyterian Healthcare Servs.
Thermal Pipe Shields appealed the district court’s grant of summary judgment on its monopolization and tying claims. It contended the district court erred by resolving genuine issues of material fact against it. Johns Manville Corp. countered claiming Thermal Pipe Shields didn’t raise any genuine issues of material fact to support its claims. The 10th Circuit concluded genuine issues of material fact preclude summary judgment on Thermal Pipe Shields’ Section 2 monopolization claim. The 10th Circuit agreed with Johns Manville Corp. the district court properly granted summary judgment on Thermal Pipe Shields’ Section 1 tying claim.
Section 2 of the Sherman Act prohibits entities from monopolizing “any part of the trade or commerce among the several States” or “with foreign nations,” according to 15 U.S. Code Section 2. To succeed on a Section 2 monopolization claim, a plaintiff must prove “the possession of monopoly power in the relevant market and 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,” the opinion noted, quoting the U.S. Supreme Court decision United States v. Grinnell Corp. A private plaintiff seeking damages must also show “its injuries were caused by the defendant’s anticompetitive conduct,” citing the 10th Circuit decision Novell, Inc. v. Microsoft Corp. The 10th Circuit refers to this trio of elements as monopoly power, exclusionary conduct and antitrust injury.
For its Section 1 tying claim, Thermal Pipe Shields contended the district court erred in dismissing this claim. It argued it presented evidence “JM conditioned customers’ access to its non-calsil products on their not buying TPS calsil” and “JM derived sufficient economic power from its other insulation products to leave distributors no choice but to accept the condition to buy JM calsil.” The 10th Circuit concluded Thermal Pipe Shields didn’t raise a genuine issue of material fact about whether Johns Manville Corp. conditioned sales of its non-calsil products on distributors’ not buying calsil from Thermal Pipe Shields
Section 1 of the Sherman Act prohibits unreasonable restraints on trade, according to 15 U.S.C. Section 1. The 10th Circuit analyzed tying arrangements under this broad prohibition, citing the 10th Circuit decision Suture Express, Inc. v. Owens & Minor Distrib., Inc. A tying arrangement is “an agreement by a party to sell one product but only on the condition that the buyer also purchases a different (or tied) product, or at least agrees that he will not purchase that product from any other supplier,” citing the decision Eastman Kodak Co. v. Image Technical Services, Inc. Tying arrangements include “instances of discount bundling—when a seller charges less for a package of two products linked together than the sum of the prices at which it sells each product individually,” according to Suture Express. According to the 4th Circuit decision It’s My Party, Inc. v. Live Nation, Inc., “the crux of tying lies in the seller’s exploitation of its control over the tying product to force the buyer into the purchase of a tied product that the buyer . . . might have preferred to purchase elsewhere on different terms.”
After evaluation, the 10th Circuit Court of Appeals held Thermal Pipe Shields didn’t show a genuine issue of material fact to save its tying claim.
According to the opinion, Thermal Pipe Shields presented enough evidence to support its Section 2 monopolization claim: its expert had shown monopoly power and antitrust injury and Johns Manville Corp.’s threats show exclusionary conduct. Thermal Pipe Shields didn’t present enough evidence to support its Section 1 tying claim, the opinion added. Thus the 10th Circuit affirmed the district court’s grant of summary judgment to Johns Manville Corp. on Thermal Pipe Shields’ Section 1 tying claim. But they reversed on Thermal Pipe Shields’ Section 2 monopolization claim and remanded for further proceedings.