10th Circuit allows jury to decide antitrust lawsuit

Aug 14, 2023

The Byron White U.S. Courthouse in downtown Denver, which houses the 10th U.S. Circuit Court of Appeals.

A jury will decide whether a manufacturer broke the law by threatening its customers with retaliation if they bought product from a rival supplier, the federal appeals court based in Denver ruled on Monday.

A three-judge panel of the U.S. Court of Appeals for the 10th Circuit found a trial judge wrongly sided with defendant Johns Manville Corp. by resolving the lawsuit in the company's favor after determining there were "few instances of threatened or actual refusals to supply." Instead, the panel deemed the evidence could lead a jury to conclude Johns Manville resorted to anticompetitive tactics to prevent Thermal Pipe Shields, Inc. from penetrating the market.

"Viewing the evidence most favorably to TPS, we see JM as leaving its distributors with an all-or-nothing choice: stop doing business with TPS or lose access to JM’s enormous thermal-insulation inventory," wrote Judge Gregory A. Phillips in the panel's Aug. 21 opinion.

Decided: August 21, 2023

Jurisdiction: U.S. District Court for Colorado

Ruling: 3-0

Judges: Gregory A. Phillips (author)

Michael R. Murphy

Veronica S. Rossman

Johns Manville was, for a long time, the sole U.S. manufacturer and supplier of calcium silicate, or "calsil," which is used to insulate pipes at high temperatures. With plants in Colorado and Louisiana, Johns Manville primarily sold to distributors, who, in turn, sold to commercial customers. Although only a small portion of Johns Manville's overall sales were for calsil, the company had captured well over 90% of the calsil market.

In 2018, Thermal Pipe Shields attempted to enter the calsil market with its own product, supplied from China. Between 2018 and 2021, the company ended up selling $2.3 million worth of the product, but it claimed Johns Manville unfairly prevented it from expanding. It sued Johns Manville in 2019 under the Sherman Antitrust Act, which prohibits unreasonable restrictions on competition.

After reviewing the evidence, U.S. Magistrate Judge Michael E. Hegarty granted summary judgment for Johns Manville in 2022, resolving the case without a trial. If Johns Manville did attempt to deter its customers from buying from Thermal Pipe Shields, Hegarty did not view the efforts as effective "to a significant degree."

There were "few instances of threatened or actual refusals to supply and no evidence of resulting adverse effects," Hegarty wrote. "Defendant’s response to Plaintiff’s entry into the market — to test its relationships with distributors and to tout the advantages of its product — was both legitimate and procompetitive in nature."

On appeal, the 10th Circuit saw things differently.

First, all parties — including the U.S. Department of Justice, which took the rare step of filing its own brief in the case — agreed Hegarty had looked at Thermal Pipe Shields' claims using the wrong legal test, one that focused on what happens when competitors refuse to supply each other with product.

Second, the appellate panel pointed to several pieces of evidence undercutting the notion that Johns Manville's conduct was benign:

• The company told a customer that "our partnership could potentially change" if the customer bought from Thermal Pipe Shields

• A sales manager denigrated Thermal Pipe Shields' product as "Chinese calsil," which allegedly contained asbestos and would "put your customers ... at risk"

• Johns Manville threatened to take its product to a rival distributor if a customer bought from Thermal Pipe Shields

Further, there was evidence suggesting Thermal Pipe Shields' calsil was not of a poorer quality and was, in fact, less expensive. Under the circumstances, Thermal Pipe Shields' expert witness testified he would expect each company to have an even share of the market, rather than Johns Manville retaining its dominance.

During oral arguments before the appellate panel, Johns Manville attempted to minimize its reaction to Thermal Pipe Shields.

"What it labels 'unlawful threats' just reflects aggressive competition," said attorney Gregory J. Kerwin.

"Are you saying, Mr. Kerwin, that there's nothing wrong with somebody who has 95% of the market to threaten its customers that they will cut them off if they will deal with a new entrant who has 5% of the market?" asked Senior Judge Michael R. Murphy.

Ultimately, the panel believed a jury should decide whether Johns Manville's conduct was unreasonably anticompetitive.

"JM immediately recognized the threat TPS posed to its market share. Within days of TPS’s market entry, JM emailed its sales force, warning of TPS’s competitive threat and proposing to cut off any distributors buying TPS’s calsil," Phillips wrote.

Although certain evidence could provide non-nefarious reasons why Thermal Pipe Shields did not succeed in the market, "they also show that JM used its authority as a monopolist to pressure distributors," Phillips added.

Thermal Pipe Shields' expert estimated the company suffered $12 million in damages.

At the same time, the panel agreed Thermal Pipe Shields had not demonstrated how Johns Manville had allegedly leveraged its other product lines to ensure customers continued to buy its calsil.

The case is Chase Manufacturing, Inc. v. Johns Manville Corp.

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