NIBCO Inc. v. Viega LLC

Citation: 354 F. Supp. 3d 566Docket: CIVIL ACTION NO. 1:17-CV-1739

Court: District Court, M.D. Pennsylvania; November 4, 2018; Federal District Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

NIBCO claims that Viega has leveraged its dominance in the carbon steel press fittings market to exert control over the copper press fittings market. NIBCO asserts that Viega conditions the sale of its carbon steel press fittings on customers agreeing not to purchase copper press fittings from NIBCO. In certain cases, Viega imposes penalties, such as lost discounts or higher prices, on customers who continue to sell NIBCO's products. 

To support these allegations, NIBCO provides seven examples of wholesale distributors that ceased selling its copper press fittings due to Viega's coercive tactics. Examples include Weinstein Supply Company, which was compelled to stop offering NIBCO's products to obtain Viega's carbon steel fittings; Moore Supply Company, which faced threats of supply cuts; and Mid-City Supply Co. Inc., which switched to Viega’s products after being forced to drop NIBCO's line. Other distributors, such as American Pipe Supply Company and Charles D. Sheehy, Inc., similarly report being pressured to drop NIBCO's products to continue receiving Viega's offerings.

NIBCO claims that these actions have resulted in lost sales and negatively affected competition by restricting access to the copper press fittings market, forcing stakeholders to pay higher prices, and limiting consumer choice, thereby harming the competitive landscape that NIBCO would otherwise contribute to.

NIBCO has filed a five-count complaint asserting multiple claims against Viega. The claims include: Count I for unlawful tying in violation of the Sherman Act and the Clayton Act; Count II for contracts in restraint of trade under the Sherman Act; Counts III and IV for monopolization and attempted monopolization, respectively, under the Sherman Act; and Count V for tortious interference with business relations under Pennsylvania law. Viega has moved to dismiss the entire complaint, and the motion is prepared for a decision.

The legal standard for dismissal under Rule 12(b)(6) requires the court to accept all factual allegations as true, construing the complaint favorably for the plaintiff, and determining if the plaintiff could be entitled to relief based on any reasonable reading of the complaint. The court can also consider public records and documents attached to the complaint. The complaint must provide fair notice of the claims and their grounds. 

To assess the complaint's sufficiency, the court follows a three-step inquiry: identifying the necessary elements of the claims, separating well-pleaded facts from legal conclusions, and evaluating whether the facts support a plausible claim for relief. A claim is plausible if it allows for a reasonable inference of the defendant's liability.

Viega challenges NIBCO's claims on four grounds: failure to plead relevant product and geographic markets, deficiencies in the merits of the antitrust claims, lack of antitrust standing, and insufficiency of the state law tortious interference claim. NIBCO's antitrust claims are rooted in Sections 1 and 2 of the Sherman Act and Section 3 of the Clayton Act, with Section 1 addressing contracts that restrain trade, Section 2 prohibiting monopolization or attempts to monopolize, and Section 3 banning sales conditioned on non-purchase from competitors.

To succeed in a claim under the relevant statutory sections, NIBCO must define the product and geographic markets to evaluate Viega's market power. The court assesses the "outer boundaries" of a relevant product market based on the "reasonable interchangeability of use" between the product and its substitutes. A product is considered reasonably interchangeable if it is "roughly equivalent" for its intended use, with key factors including price, use, and qualities. The Third Circuit emphasizes that a crucial test for interchangeability is cross-elasticity of demand, which examines whether demand for one product changes in response to price shifts of another.

Courts typically refrain from dismissing proposed market definitions at the pleading stage, as proper definition often requires factual inquiries into consumer behaviors. Nevertheless, dismissal is justified if a plaintiff fails to define the market according to reasonable interchangeability and cross-elasticity or proposes a market that excludes all interchangeable substitutes. The plausibility of NIBCO's proposed product markets—copper press fittings and carbon steel press fittings—is not dismissed at this early stage. NIBCO presents a rationale for its focused market definition, arguing that these fittings are distinct in the context of piping use and lack cross-elastic demand with other products. Viega counters that NIBCO's definition overlooks interchangeable substitutes. However, the law does not inherently reject narrowly-drawn markets; it hinges on the principles of reasonable interchangeability and equivalency. A plaintiff must provide facts that differentiate their proposed submarket from potential substitutes to support their claims.

A court decision, Optische Industrie De Oude Delft v. Hologic, emphasizes that a plaintiff must justify a narrow product market definition by explaining the exclusion of substitute products. NIBCO has met this requirement under Rule 12(b)(6), presenting a credible basis for asserting that copper and carbon press fittings are not interchangeable with other fittings. NIBCO highlights key distinctions: both fitting types enhance efficiency and safety, allow for flame-free installations, and have specific compatibility with copper and black iron piping. The court notes that while the merits of NIBCO's claims will be evaluated later, the definitions of the product markets appear plausible at this stage.

Regarding the geographic market, NIBCO asserts that the relevant market for both types of fittings is the United States, stating that manufacturers distribute products nationwide. NIBCO claims that 88% of U.S. copper fittings are sourced from two domestic manufacturers, while Viega held a 95% market share for carbon fittings until 2017. Despite Viega's argument that NIBCO's market definition lacks justification for excluding international manufacturers, the court finds NIBCO's geographic delineation satisfactory. It supports the notion that failing to consider foreign producers does not invalidate a well-defined geographic market at this procedural stage. Thus, NIBCO's geographic market claim is deemed plausible.

Count I presents NIBCO's allegation that Viega is engaged in an unlawful tying scheme, linking the sale of its carbon steel press fittings (the "tying" product) to the purchase of its copper press fittings (the "tied" product). NIBCO seeks to establish antitrust liability primarily through a per se theory, while also considering a "rule of reason" claim. To prove per se tying liability under the Sherman Act, three elements must be established: (1) the seller ties two distinct products; (2) the seller has market power in the tying product market; and (3) a substantial amount of interstate commerce is affected. NIBCO asserts that Viega's tying of carbon steel press fittings to copper press fittings is adequately supported by the complaint. Viega does not dispute the first element but challenges the second and third.

Regarding market power, NIBCO must demonstrate that Viega has "appreciable economic power" in the carbon steel press fittings market. Market power is typically inferred from a seller's significant market share, although other factors, such as barriers to entry, can also indicate market power. NIBCO claims that until 2017, Viega's carbon steel press fittings were the only approved ones in the domestic market and that Viega currently controls at least 95% of this market, which is generally sufficient to establish market power for antitrust claims. Furthermore, NIBCO argues that there are high barriers to entry in this market, an important consideration in assessing market power.

NIBCO claims that entering the carbon steel press fittings market presents significant technical, regulatory, and capital challenges, which enhances Viega's market power due to its large market share. Viega counters that NIBCO's assertion of market power is weakened by the entry of a new manufacturer within the last year, though the Third Circuit has not determined if new market entries negate findings of market power. Previous appellate courts have rejected the notion that a single new competitor automatically diminishes market power, especially when the incumbent retains over 95% of the market. 

Additionally, NIBCO must demonstrate a substantial impact on interstate commerce due to the tying arrangement. While NIBCO does not specify dollar impacts, it notes that Viega's 2016 net sales were approximately $115 million, representing 71% of the copper press fittings market, while NIBCO holds a 17% share, equating to roughly $27.5 million. The court is not ready to rule that this level of competition foreclosing is insubstantial, despite Viega's argument that its actions affected only seven distributors. NIBCO clarifies that these distributors are merely examples, not an exhaustive list. 

Viega argues that the per se tying claim should fail because the arrangement allegedly only limited dealers and posed little threat to competition. Viega references cases where manufacturers could bypass tying arrangements without affecting consumer access. The court finds these cases to be procedurally and substantively different from the current situation, noting that prior conclusions were based on full trial records and specific circumstances regarding consumer choice and access.

Foreclosure of consumer choice is central to the illegality of a per se tie, as noted in Hollymatic and Smith Machinery cases. NIBCO's allegations suggest that Viega's actions in the carbon steel press fittings market hinder competition in the copper press fittings market, limiting consumer options. NIBCO counters Viega's claim that contractors can easily switch distributors by asserting that they generally prefer not to engage with multiple sources. Viega further argues that NIBCO's fittings are accessible through large retailers, but this is based on information outside the complaint, indicating the need for a factual investigation into Viega's impact on interstate commerce. NIBCO's claim of per se tying is deemed plausible and survives Rule 12(b)(6) scrutiny, leaving the alternative rule of reason theory unaddressed.

In Count II, NIBCO alleges that Viega has engaged in contracts that restrain trade, violating Section 1 of the Sherman Act, requiring proof of concerted action with anti-competitive effects, illegality of the actions, and proximate injury. Viega does not contest the existence of an agreement and acknowledges that Counts I and II are interrelated, leading to the denial of Viega's motion to dismiss Count II.

Counts III and IV involve claims of monopolization and attempted monopolization in the copper press fittings market. To succeed on these claims, a plaintiff must demonstrate that the defendant has monopoly power and that it has willfully maintained or acquired that power through means other than competitive merit.

The second factor evaluates whether an alleged monopolist has obtained or maintained power through means other than competitive merits. Viega contends that NIBCO has failed to demonstrate monopoly power or a significant likelihood of achieving it in the copper press fittings market. Monopoly power is defined as the ability to control prices or exclude competition. Courts typically assess the existence of monopoly power by examining whether the defendant holds a predominant market share. Viega argues NIBCO's claims lack merit, pointing to NIBCO's assertion of having a strong product line and the entry of a new competitor in the carbon steel press fittings market. However, NIBCO's product quality claims do not weaken Viega's substantial market share, and a single new entrant with less than 5% market share does not undermine claims of monopoly power. NIBCO asserts that Viega has used its monopoly power to limit consumer choices in the copper press fittings market through non-merit-based practices. To succeed on an attempted monopolization claim, a plaintiff must show predatory conduct, intent to monopolize, and a dangerous probability of achieving monopoly power. The court found that NIBCO's complaint sufficiently alleges that Viega engaged in anti-competitive practices by tying its product sales, which indicates an intent to monopolize. Therefore, NIBCO's attempted monopolization claim withstands dismissal under Rule 12(b)(6). Viega also challenges NIBCO's antitrust standing, arguing that NIBCO has not demonstrated a cognizable antitrust injury, emphasizing that antitrust laws protect competition, not individual competitors.

To establish federal antitrust claims, a plaintiff must demonstrate (1) harm that antitrust laws aim to prevent and (2) an injury to the plaintiff stemming from the defendant's unlawful acts. NIBCO claims that Viega's conduct restricts consumer choice in the copper press fitting market, leading to reduced price competition and higher consumer prices. The court finds NIBCO has adequately alleged an antitrust injury sufficient for Rule 12(b)(6) dismissal standards.

Additionally, NIBCO has filed a tortious interference claim under Pennsylvania law, requiring proof of: (1) existing or prospective economic relations, (2) intentional harm by the defendant, (3) lack of privilege or justification, and (4) resulting damage. NIBCO asserts that Viega interfered with its relationships with several wholesale distributors. Viega counters that NIBCO has not sufficiently pleaded these relationships and lacks a basis for claiming an independently actionable wrong. However, the court finds NIBCO has detailed existing relationships and how Viega pressured distributors to cease dealings with NIBCO, thus sufficiently alleging Viega's wrongdoing.

The court denies Viega's motion to dismiss NIBCO's claims, concluding that NIBCO has presented plausible violations of the Sherman Act, Clayton Act, and state law. The court deems oral argument unnecessary, noting that the cases cited by Viega do not support its dismissal argument effectively. An appropriate order will follow.

Viega's cited cases predominantly attempt to narrow the relevant product market to a single brand or do not provide sufficient facts to distinguish the defined market from potential substitutes. For instance, in Campfield v. State Farm Mut. Auto. Ins. Co., the court dismissed a complaint that limited the relevant market for a monopsony claim to a specific consumer group. Similarly, Prime Aid Pharm. Corp. v. Humana, Inc. rejected a claim that defined the market as a 'single-brand market,' and Fresh Made, Inc. v. Lifeway Foods, Inc. dismissed a complaint for failing to differentiate the specialty market for Russian dairy products from broader dairy categories. NIBCO identifies Elkhart Products Corporation as holding 5% of the U.S. market share for copper press fittings, but the complaint does not clarify its corporate status. Viega challenges NIBCO’s market definitions, asserting they are too narrow. However, NIBCO's market delineation is deemed plausible, leading to a rejection of Viega's arguments at this stage, while allowing for potential reassertion later if the evidence does not support the current market boundaries. Viega’s sole supportive case, Barr Labs. Inc. v. Abbott Labs. Inc., is distinguished as it involved significant market entry evidence that diluted the defendant's market power, along with a lack of barriers to entry and stable market structure, contrasting with the current litigation context. The court also notes the concept of 'line forcing' related to product distribution obligations.