1. Why is the fact that McWane had a monopoly on pipe fittings important in the analysis of this case?

2. In what way did the McWane plan make it “economically infeasible” for a distributor to purchase the fittings from a competitor?

3. Focus on Critical Thinking:Could McWane have avoided liability by designing the Full Support Program in a different way? The court tells us that exclusive dealing arrangements are not per se unlawful. How could this agreement be revised so it does not run afoul of antitrust laws?

McWane manufactures pipe fittings that join together pipes and help direct the flow of pressurized water in pipeline systems. McWane sells the fittings through distributors who in turn sell them to end users such as a municipal water authority. In April 2006, McWane was the only U.S.-based supplier who sold the fittings. In 2009, Congress passed the American Reinvestment and Recovery Act that authorized $6 billion to fund water infrastructure projects. The law created an increased demand for the pipe fittings and that opportunity led Star, a European-based manufacturer of pipe fittings, to enter the U.S. market and compete with McWane. 

In response to Star’s forthcoming entry into the U.S. market, McWane implemented its “Full Sup-port Program” among its existing distributors. The program punished distributors who bought fittings from other companies (such as Star) by threatening to halt their rebate program and cutting off the distributor from purchasing McWane’s fittings for up to three months. For example, when distributor Hajoca Corporation purchased Star fittings, McWane cut off sales of its domestic fittings to all Hajoca branches and withheld its rebates. Other distributors testified to abiding by the Full Support Program in order to avoid the devastating result of being cut off from all McWane fittings. Star was excluded by some distributors even after offering a more generous rebate than McWane. Internal documents reveal that McWane’s express purpose was to raise Star’s costs and impede it from becoming a viable competitor. The Federal Trade Commission charged McWane with a violation of the FTCA and ultimately the trial court found that McWane’s actions constituted an illegal exclusive dealing pol-icy used to maintain its monopoly power in the pipe fittings market. 

The U.S. Court of Appeals for the Eleventh Circuit affirmed the lower court decision in favor of the Federal Trade Commission. The court agreed that McWane’s Full Support Program was an unlawful exclusive dealing arrangement that foreclosed Star’s access to distributors for domestic fittings and harmed competition, thereby contributing significantly to the maintenance of McWane’s monopoly power in the market. The court noted that the two largest waterworks distributors in the U.S. (with a combined 60 percent market share), prohibited their branches from purchasing domestic fittings from Star after the Full Support Program was announced. The practical effect of the program was to make it economically infeasible for distributors to drop McWane and switch to Star.

Exclusive Dealing Arrangements  “As we’ve observed, exclusive dealing arrangements are not per se unlawful, but they can run afoul of the antitrust laws when used by a dominant firm to maintain its monopoly. Of particular relevance to this case, an exclusive dealing arrangement can be harmful when it allows a monopolist to maintain its monopoly power by raising its rivals’ costs sufficiently to prevent them from growing into effective competitors.  .  .  . Moreover, the nature of the Full Support Program arguably posed a greater threat to competition than a conventional exclusive dealing contract, as it lacked the traditional procompetitive benefits of such contracts. As we’ve noted, courts often take a permissive view of such contracts on the grounds that firms compete for exclusivity by offering procompetitive inducements (e.g., lower prices, better service). But not here. The Full Support Program was ‘unilaterally imposed’ by fiat upon all distributors, and the [trial court] found that it resulted in ‘no competition to become the exclusive supplier’ and no ‘discount, rebate, or other consideration’ offered in exchange for exclusivity.”