It's not often that the Federal Trade Commission loses on its home court - after all, the decisions of the agency's administrative law judge are reviewed by the commission itself.
In a decision published yesterday, Chief Administrative Law Judge Michael Chappell rejected the FTC's case against McWane Inc. for colluding to fix prices in the water works fittings market, but agreed with the agency on other charges that McWane illegally excluded competitors.
“The preponderance of the evidence in the record, viewed as a whole, fails to demonstrate a conspiracy … to raise and stabilize prices in the Fittings market,” Chappell found in a 464-page decision issued after a two-month trial last fall.
McWane, represented by a team from Baker Botts’ Washington office, including partners Joseph Ostoyich and Erik Koons, as well as Birmingham-based Maynard Cooper and Gale, hailed the decision as a win. The company called it "another example of a regulatory agency unreasonably stretching the boundaries of its enforcement powers."
For the lawyers following the case, the key question is what the FTC will do now. "The case will pose an important challenge for the commission,” said David Balto, a public interest antitrust attorney and former FTC official. “Since 1995, the commission has always reversed its [administrative law judge] when it found for a defendant, which has led to the criticism of unfairness because the commission is acting as both judge and prosecutor.”
In July 2006, for example, the commissioners reversed administrative law judge Stephen McGuire after he dismissed a monopolization case against Rambus Inc. involving the market for dynamic random access memory. Instead, they held that Rambus violated Section 2 of the Sherman Act. In 2008, the U.S. Court of Appeals for the D.C. Circuit reversed the FTC and found for Rambus.
The case against McWane concerned the market for ductile iron pipe fittings used in municipal and regional water distribution systems. The FTC alleged seven counts of unfair competition in violation of Section 5 of the FTC Act, claiming that McWane and the other two leading companies in the market entered into an illegal agreement in 2008 to fix, raise and stabilize prices. (The other two companies, Sigma Corporation and Star Pipe Products Ltd., settled the charges.)
The FTC also alleged that McWane, the largest of the three suppliers, had a monopoly in the market for ductile iron pipe fittings and illegally sought to maintain it. Those charges, that “respondent engaged in monopolistic practices, attempted to monopolize, engaged in a conspiracy to monopolize, and engaged in an unreasonable restraint of trade … have been proven by a preponderance of the evidence,” Chappell found, backing the FTC. “The appropriate remedy is to bring an end to this conduct, rectify past violations, and prevent reoccurrence.”
However, Chappell also found that McWane priced independently and below rival suppliers "in order to beat prices being offered by its competitors, which is a pro-competitive purpose." He added that "Complaint Counsel's daisy chain of assumptions fails to support or justify an evidentiary inference of any unlawful agreement involving McWane.”
The decision is subject to review by the full Federal Trade Commission on its own motion, or at the request of any party.
Of the five commissioners who voted to bring the case in January 2012, only two remain—Edith Ramirez and Julie Brill, who have since been joined by Maureen Ohlhausen and Joshua Wright.
“The commission that brought the complaint against McWane … has changed significantly,” Balto noted. “Will this be the unique case where the FTC in effect reverses itself and finds for the defendant?"