In a ruling released publicly on February 6, 2014, the Federal Trade Commission dismissed its accusations that McWane, Inc. colluded or conspired with its competitors to fix prices in the water works fittings markets.  This dismissal leaves in place Administrative Law Judge D. Michael Chappell’s complete rejection of the Commission’s conspiracy claims, which he found to be nothing more than “unpersuasive” and “unsupported speculation” that was “weak at best,” and his ultimate conclusion that “Complaint Counsel’s daisy chain of assumptions fails to support or justify an evidentiary inference of any unlawful agreement involving McWane.” In addition, the Commission overturned Judge Chappell’s ruling that McWane’s distribution agreement with Sigma was unlawful, dismissing the two counts related to those accusations.  In total, the Commission dismissed six of the seven counts against McWane and the lone ruling against McWane drew a stinging dissent from Commissioner Joshua Wright.

The FTC’s dismissal confirms Judge Chappell’s conclusions that we did not collude or conspire to fix prices, just as we have said all along,” said McWane, Inc. President G. Ruffner Page, Jr. “While we are very pleased that the Commission at last dismissed these unwarranted and speculative allegations, the huge expense of these proceedings could have been better spent creating and preserving jobs for our team members.

This case is yet another example of a regulatory agency unreasonably stretching the boundaries of its enforcement powers in a way that discourages companies from investing in the US and creating jobs.

It is unfortunate that with our economy and the livelihoods of so many Americans in danger, our own government would choose to attack the very people trying to fix these problems,” said Page.

Three years ago the Commission began an examination of McWane’s marketing programs in its water works fitting business as a result of complaints from a foreign competitor.  This importer of products from China, Korea and India claimed that a modest and routine rebate that McWane provided to its loyal customers was somehow anti-competitive.  The Commission also raised questions about the fact that, like almost all other trade associations, the short-lived association for the fittings industry gathered limited, stale, and perfectly proper statistics about the tons of fittings sales in the U.S.   Later, the FTC also accused McWane of engaging in price fixing and collusion in the fittings market, claims that Judge Chappell rejected.  These proceedings involve an industry that remains highly competitive, and remains under assault from foreign importers who continue to flood the market and push the domestic industry and hundreds of American jobs closer to extinction.

Although this ruling confirmed that McWane did not conspire to fix prices, three of the four commissioners upheld a single count (of the seven), finding that McWane’s modest, brief and voluntary rebate program limited the ability of an importer of foreign fittings to fully participate in domestic fittings jobs funded by the American Relief and Recovery Act (The Stimulus Act). However, in a well-reasoned and lengthy dissent, Commissioner Wright flatly rejected this conclusion because it conflicts with both the facts proven at trial and long-standing legal precedent.

Specifically, Commissioner Wright concluded that “Complaint Counsel fails totally to establish, as it must under the antitrust laws, that McWane’s conduct harmed competition” and “[t]he record is clear there is no such proof.”  Wright found Complaint Counsel’s legal arguments “at best, question begging, and, at worst, misleading,” and further noted that what was “strikingly absent” from the Commission’s decision was “any evidence establishing the requisite analytical link between what the Commission describes as ‘foreclosure’ and harm to competition.”  Thus, given the “dearth of record evidence demonstrating McWane’s conduct has had an adverse effect on competition,” Commissioner Wright dissented from the Commission’s decision, finding that Complaint Counsel failed to establish a necessary element of a monopolization claim:  “that McWane’s conduct was [actually] exclusionary.”

Commissioner Wright’s conclusions are consistent with those of former Commissioner Rosch, who dissented from the FTC’s pursuit of this claim at the outset, concluding that there was nothing illegal or unfair about McWane’s rebate program.  When the complaint was filed by the FTC he expressed his view that: “I do not think that the Complaint against McWane adequately alleges exclusive dealing as a matter of law. In particular, there is case law … blessing the conduct that the complaints charge as exclusive dealing.”

Likewise, Commissioner Wright found “undisputed evidence that Star was able successfully to enter the domestic fittings industry and to succeed in expanding its business once it did enter,” and thus the “more plausible inference to draw” from Complaint Counsel’s “very weak” “indirect evidence” is that McWane’s rebate policy “had almost no impact on Star’s ability to grow its business, which, under the case law, strongly counsel’s against holding that McWane’s conduct was exclusionary.”

Our modest, short term rebate was a price cut designed to benefit and reward our customers for helping us save the jobs of our employees during a difficult economic time,” said Page.  “To characterize that as unfair competition under Section 5 flies in the face of the overwhelming evidence at trial and established judicial precedent.  And to claim that it somehow excluded Star and injured competition is out and out nonsense, as Commissioner Wright’s dissent shows.

The FTC’s theory rests upon speculation that the foreign competitor might have bought or built its own foundry to manufacture fittings in the absence of McWane’s rebate.  This suggestion ignores the realities and history of the fittings market, including the fact that domestic manufacturing of waterworks fittings has been in severe decline for over a generation.  In the 1980s, almost 100 percent of waterworks fittings were domestic and manufactured in multiple foundries around the country. By 2008, the percentage of domestically manufactured fittings had declined to less than 25 percent. In the face of this dramatic decline in sales, all of the other manufacturers of domestic fittings closed their foundries and moved their production overseas.  McWane alone continued to fight for American jobs as the only remaining US manufacturer of a full range of small, medium, and large waterworks fittings.  The claim that a foreign importer would have invested millions of dollars of scarce capital in this declining industry to take advantage of the one-year ARRA program lacks support and is completely illogical.