Building Materials Corp. of America v. Rotter

Citations: 535 F. Supp. 2d 518; 2008 U.S. Dist. LEXIS 11917; 2008 WL 442135Docket: Civil Action 06-1490

Court: District Court, E.D. Pennsylvania; February 15, 2008; Federal District Court

SummaryOriginalCytator Case TreatmentAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Building Materials Corporation of America (GAFMC) and its subsidiary Building Materials Investment Corporation (BMIC) filed a lawsuit against Martin J. Rotter, Ventco, Inc., and Mongoose Products, Inc. (collectively referred to as "Rotter"). GAFMC's claims against Rotter include breach of contract, trademark infringement, false designation of origin, trademark dilution, false advertising, product disparagement, unfair competition, and constructive trust disgorgement. In response, Rotter filed multiple counterclaims, including antitrust violations, false advertising, unfair competition, tortious interference, fraud, breach of contract, unjust enrichment, and civil conspiracy.

Jurisdiction for the case is established under 28 U.S.C. 1331 and 1367. GAFMC moved to dismiss several of Rotter's counterclaims, specifically four antitrust claims, unfair competition, tortious interference, civil conspiracy, fraud, and fraud and misrepresentation. The court granted GAFMC's motion to dismiss the antitrust counterclaims and did not allow Rotter to amend those claims. However, GAFMC's motion to dismiss the state law claims was denied.

The background establishes that GAFMC is a leading manufacturer of roofing products, while Rotter is credited with inventing the Cobra Ridge Vent. GAFMC and Rotter had a Patent and Know-How Agreement, under which GAFMC was to pay Rotter royalties for ten years for products utilizing his technology. This agreement ended in July 2002, after which Rotter received his final royalty payment. In 2004, over two years post-termination, Rotter began developing a new ridge vent for asphalt roofs, leading to the Mongoose Ridge Vent patent applications filed in January 2005.

In 2005, Rotter began selling the Mongoose Ridge Vent, which, like the Cobra Ridge Vent, relies on non-woven mesh for its manufacture. Rotter alleges that GAFMC breached its contract by not exerting best efforts to develop, market, and sell products using Cobra Technology and claims GAFMC violated various laws due to the reliance on non-woven mesh. At that time, there were four U.S. suppliers of non-woven mesh: Loren, Glit, Americo, and WIN, with Loren and Glit under the same parent company, KATY Industries. GAFMC had exclusive contracts with KATY and Americo, which restricted Americo from selling mesh to other roofing companies. Rotter had a contract with WIN, but KATY acquired WIN in August 2005 and subsequently ceased sales of non-woven mesh to Rotter. Rotter contends that GAFMC engaged in contract negotiations with KATY that resulted in an exclusive supply agreement, which he claims was unnecessary and intended to harm Mongoose, forcing him to seek non-woven mesh from overseas due to the exclusivity of GAFMC's contracts.

The legal standard for a motion to dismiss under Fed. R.Civ. P. Rule 12(b)(6) requires the court to accept well-pleaded allegations as true and draw reasonable inferences in favor of the plaintiff, though legal conclusions disguised as factual allegations are not accepted as true. The complaint must provide more than labels and conclusions, as a formulaic recitation of elements does not suffice. 

Rotter alleges that GAFMC's exclusive agreement with KATY violates Section 1 of the Sherman Act, which prohibits contracts that restrain trade. Typically, the legality of such actions is assessed using the rule of reason. The Supreme Court has previously held that vertical non-price restraints and vertical price restraints should be evaluated under this rule.

The dispute between GAFMC and KATY pertains to a non-price related vertical agreement, necessitating the application of the rule of reason to assess potential illegal trade restraints by GAFMC. To establish a violation of 15 U.S.C., Rotter must demonstrate: 1) concerted action by GAFMC; 2) anti-competitive effects in the relevant product and geographic markets; 3) that the concerted action was illegal; and 4) that Rotter suffered injury as a direct result. 

A critical component of proving a Section 1 violation is the plaintiff’s obligation to define the relevant product market, which is characterized as commodities that are reasonably interchangeable for the same purposes. The boundaries of this market are determined by the reasonable interchangeability of use and the cross-elasticity of demand between the product and its substitutes. Reasonable interchangeability implies that products can serve similar functions despite potential consumer preferences. Key factors in assessing this interchangeability include price, use, and product qualities.

A relevant market must exhibit cross-elasticity of demand, where an increase in the price of one product leads to heightened demand for substitutes. Although proper market definition typically requires factual investigation, courts may dismiss antitrust claims for insufficient market pleading under Fed. R.Civ. P. 12(b)(6). A failure to adequately define the relevant market, particularly in terms of cross-elasticity and interchangeability, can result in dismissal. Cases such as Fresh Made, Inc. v. Lifeway Foods, Inc., and Brotech Corp. v. White Eagle Int'l Techs. Group, Inc. illustrate this principle, where courts dismissed claims due to inadequate market definitions.

In Fresh Made, the plaintiff identified the product market as specialty Russian foods, including kefir, but failed to substantiate its distinctness from yogurt and other dairy products. The court dismissed the antitrust claim due to a lack of allegations regarding market interchangeability, price, and demand comparisons. Similarly, Rotter, in his counterclaims, asserts that the relevant market is asphalt shingle roof ridge vents without providing factual support or analysis to differentiate this market from broader categories like shingle roof ridge vents or other roofing products. His assertion does not reference price or demand relative to the roofing industry and neglects the principles of reasonable interchangeability and cross-elasticity of demand. Consequently, the court found Rotter's market definition to be a legal conclusion lacking factual backing, leading to the dismissal of his antitrust counterclaim. Under Section 2 of the Sherman Act, which addresses monopolization, Rotter alleges GAFMC's monopoly over the asphalt shingle roof ridge vent market through three counts: maintaining a monopoly, attempting to maintain it, and leveraging it to suppress competition in roofing materials. To succeed under Section 2, a claimant must demonstrate monopoly power in the relevant market and the willful maintenance of that power, as well as prove predatory conduct and intent in cases of attempted monopolization. Determining monopoly status requires examining the relevant product market.

Section 1 and Section 2 of the Sherman Act establish the relevant product market based on reasonable interchangeability and cross-elasticity of demand. Rotter has not adequately alleged a relevant product market under both sections, leading to the dismissal of all antitrust claims against GAFMC. GAFMC's motion to dismiss Rotter's state law claims, including unfair competition, tortious interference, civil conspiracy, and fraud, is partially denied. Specifically, the antitrust claims (Counts I-IV) are dismissed, while the claims of unfair competition (Count VI), tortious interference (Count VII), civil conspiracy (Count XIV), and fraud/misrepresentation (Count XV) can be reasserted later. However, the fraud claim is dismissed with prejudice, as Rotter was previously given an opportunity to amend his counterclaims but failed to establish a relevant product market. Additionally, Rotter's monopoly leveraging claim is insufficient due to a lack of evidence for a threatened or actual monopoly. Lastly, for the unfair competition claim under Pennsylvania law, it requires proof that the defendant misrepresented goods as those of another entity, which is not adequately supported in Rotter's claims.

The Pennsylvania Court of Common Pleas has increasingly aligned its definition of unfair competition with the Restatement (Third) of Unfair Competition (1995). According to this Restatement, a party causing harm to another's commercial relations through business practices is not liable unless the harm arises from actionable unfair competition methods. Comment G clarifies that if a competitor's means are tortious, they typically also qualify as unfair competition. Tortious interference can therefore underpin an unfair competition claim. Several judges in the Eastern District of Pennsylvania have utilized this definition in state law unfair competition cases. However, no appellate court in Pennsylvania has yet applied the Restatement (Third) to the common law tort of unfair competition. Consequently, a motion to dismiss Rotter's unfair competition claim has been denied without prejudice, allowing for potential reassertion later as the courts may provide further clarification on the matter.