FTC Action Protects Competition in Market for Iron Pipe Fittings Used in Municipal Water Systems

The Federal Trade Commission has filed complaints against the three largest U.S. suppliers of ductile iron pipe fittings, which are used in municipal water systems around the United States. The FTC charged that the three companies, McWane, Inc., Star Pipe Products, Ltd., and Sigma Corporation, illegally conspired to set and maintain prices for pipe fittings, and that McWane illegally maintained its monopoly power in the market for U.S.-made pipe fittings.

Sigma has settled the FTC's charges and has agreed not to engage in similar anticompetitive tactics in the future. The complaint against McWane and Star will be heard before an administrative law judge later this year.

"The complaints allege a broad range of collusive and exclusionary conduct calculated to raise the price of ductile iron pipe fittings, an essential component of the nation's water infrastructure," said Richard Feinstein, Director of the FTC's Bureau of Competition. "The FTC will act aggressively to protect cash-strapped municipalities and the consumers they serve from anticompetitive conduct."

Ductile iron pipe fittings, known as DIPF, are used by municipal water systems to change the diameter and direction of pipelines carrying drinking and wastewater, and are sold by suppliers such as McWane, Star, and Sigma through specialty wholesale distributors. McWane and its largest competitors in the DIPF market, Sigma and Star, all sell imported DIPF. In addition, McWane was the only domestic producer of a full line of small and medium-sized DIPF until Star entered the market for U.S.-made DIPF in 2009.

The Alleged Price-Fixing Agreements Among the Three Companies. The FTC alleges that beginning in 2008, McWane, Sigma, and Star participated in an illegal conspiracy to fix the price at which imported DIPF are sold in the United States.

According to the FTC, McWane invited Sigma and Star to collude with it beginning in early 2008, when it communicated to Sigma and Star a plan to raise and fix prices for imported DIPF. The FTC alleges that Sigma and Star accepted McWane's invitation to collude and, to further the conspiracy, each raised its prices for imported DIPF in January 2008 and again in June 2008. Between June 2008 and January 2009, according to the FTC, the three firms exchanged information documenting the volume of their monthly sales through a trade association called the Ductile Iron Fittings Research Association (DIFRA), and each company used this information to monitor whether the other co-conspirators were adhering to the terms of their collusive arrangement.

Even after the DIFRA information exchange was disbanded in early 2009, the FTC contends, Sigma tried to revive the conspiracy by attempting to convince McWane and Star to raise their prices and resume exchanging pricing data in April 2009. However, according to the FTC, at this point McWane and Star refused Sigma's invitation to collude.

The Alleged Anticompetitive Agreement Between McWane and Sigma Relating to the U.S.-Made DIPF Market. According to the FTC, the market for U.S.-made DIPF got a boost in February 2009, when Congress allocated more than $6 billion to U.S. water infrastructure projects through the American Recovery and Reinvestment Act (ARRA) of 2009. The ARRA required that only domestically produced materials be used in many ARRA-funded projects. At the time, McWane allegedly had a monopoly position in the most commonly used U.S.-made DIPF.

Sigma, Star, and another DIPF supplier tried to enter the domestic DIPF market in competition with McWane after the ARRA was passed in 2009. McWane allegedly maintained its monopoly in the market for domestically produced DIPF by agreeing with Sigma that Sigma would abandon its efforts to enter that market and instead, would be compensated by acting as a distributor of McWane's domestically produced DIPF. The complaints against McWane and Sigma allege that both companies violated the law by participating in this agreement, through which Sigma shared in a portion of McWane's monopoly profits, rather than enter the domestic DIPF market as an independent competitor to McWane.

The Alleged Exclusionary Actions by McWane and Sigma. The FTC's complaints against McWane and Sigma also allege that McWane later excluded Star from the domestic DIPF market by threatening to penalize distributors if they bought Star's domestically produced DIPF, and that Sigma agreed to adopt similar policies in a joint attempt with McWane to exclude Star from the domestic market, and thereby to share in a portion of McWane's monopoly profits in that market.

According to the FTC, the plan worked, as many distributors who otherwise would have bought domestic DIPF from Star instead dealt exclusively, or nearly exclusively, with McWane and Sigma, hampering Star's ability to compete with McWane and Sigma. McWane and Sigma's alleged course of conduct harmed consumers by preventing competition in the domestically produced DIPF market that would have resulted in lower prices and other benefits to consumers. The FTC alleges this conduct was anticompetitive and illegal.

The Settlement With Sigma. The proposed settlement order against Sigma is designed to remedy its allegedly anticompetitive tactics. It would prohibit Sigma from:

• participating in or maintaining any conspiracy to fix, raise, or stabilize the prices at which DIPF are sold in the United States, or to allocate or divide markets, customers, or business opportunities for DIPF;
• soliciting or inviting any competitor to participate in any such anticompetitive conduct; and
• participating in or facilitating any agreement between competitors to exchange competitively sensitive information, such as the sales information exchanged through DIFRA, and from otherwise disclosing such information to competitors, except in certain circumstances.

The Commission vote approving the complaint against McWane and Star, and the complaint and proposed consent order against Sigma was 4-0, with Commissioner J. Thomas Rosch issuing a separate statement.

In his statement, Commissioner Rosch wrote that, "While I have voted in favor of issuing both complaints, I respectfully object to the complaints' inclusion of claims against McWane and Sigma to the extent that such claims are based on an exclusive dealing theory ... I also respectfully object to the complaints' naming Star Pipe Products, Ltd. ("Star"), a competitor of McWane and Sigma, as a respondent in an alleged horizontal conspiracy to fix the prices of ductile iron pipe fittings (DIPFs) sold in the United States and in an alleged, related, information exchange ..."

The proposed settlement order with Sigma will be published in the Federal Register shortly, and will be subject to public comment for 30 days, until February 6, 2012, after which the Commission will decide whether to make it final. The administrative complaint against McWane and Star will be heard at the FTC in September 2012.

NOTE: The Commission issues a complaint when it has "reason to believe" that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The issuance of a complaint is not a finding or ruling that the respondent has violated the law. A consent order is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $16,000.

The FTC's Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust@ftc.gov, or write to the Office of Policy and Coordination, Bureau of Competition, Federal Trade Commission, 601 New Jersey Ave., Room 7117, Washington, DC 20580. To learn more about the Bureau of Competition, read Competition Counts. Like the FTC on Facebook and follow us on Twitter.