U.S. Federal Trade Commission building (Photo: Diego M. Radzinschi / NLJ)
The Federal Trade Commission’s 19-year winning streak is over.
The agency’s four commissioners ruled today in a split decision that pipefitter McWane Inc. did not collude to fix prices in the water works fittings market. The ruling marked the first time in nearly two decades the FTC found against itself in an administrative proceeding.
Still, it was more a win by default. That’s because the commissioners deadlocked 2 to 2 along party lines, with Chairwoman Edith Ramirez and Commissioner Julie Brill, both Democrats, voting to find collusion, and Republican commissioners Joshua Wright and Maureen Ohlhausen voting against. A deadlock at the agency means no action is taken.
However, the commissioners did uphold one lesser count, finding that McWane unlawfully maintained its monopoly in the domestic fittings market. The remaining counts in the seven-count administrative complaint issued by the commission in January 2012 were dismissed.
The collusion charge was key not so much for penalties that the FTC might have assessed, but because it would have left the company vulnerable to follow-on private class action litigation.
Baker Botts Partner Joseph Ostoyich, who tried the case for McWane and argued the appeal before the commission, said in a prepared statement: “We knew we were fighting an uphill battle, given [the FTC’s] long track record in consistently ruling in their own favor, but we decided that an aggressive defense was the way to go and we took the fight to them at trial.”
The FTC alleged that McWane and the other two leading companies in the ductile iron pipe fittings 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.)
In May, the agency’s chief administrative law judge, D. Michael Chappell, in a 464-page initial decision found that “Complaint Counsel’s daisy chain of assumptions fails to support or justify an evidentiary inference of any unlawful agreement involving McWane.” He did, however, agree with FTC staff that McWane illegally excluded competitors.
The agency’s four politically appointed commissioner reviewed Chappell’s decision to make the final ruling.
Since 1995, the commission has always reversed its administrative law judges when they found for a defendant, according to David Balto, public interest antitrust lawyer and former FTC official. The historical record has opened the agency to criticism that the process—where the commission acts as both judge and prosecutor—is unfair.
“The FTC’s generation long winning streak was indefensible and undermined the credibility of the Commission,” Balto said. “This decision begins to restore a sense of procedural fairness and substantive rationality.”
In part, the result was due to happenstance. The nomination of a fifth FTC commissioner, Terrell McSweeny, a Democrat and an antitrust lawyer at the U.S. Justice Department, is pending. Had there been a full slate of commissioners, the Democrats might have carried the day.
The FTC could not put off issuing a decision until McSweeny or another nominee was confirmed. That’s because the agency in late 2008 changed its rules, putting in place strict timelines for issuing decisions in administrative cases.
In its opinion, the commission found McWane was liable under Count Six of the administrative complaint, which alleged that the company willfully engaged in anticompetitive conduct that allowed it to maintain its monopoly in the domestic fittings market. The final order prohibits McWane from requiring exclusivity from its customers for domestic fittings.
Wright penned a 52-page dissent, writing that “In my view, Complaint Counsel fails totally to establish, as it must under the antitrust laws, that McWane’s conduct harmed competition.”