United States District Court, D. Colorado
ORDER
Michael E. Hegarty, United States Magistrate Judge
Calsil
is an insulation product that is used in large industrial
facilities. This action arises from a clash in the United
States' calsil market between the only two companies that
currently compete in that market. Plaintiff Chase
Manufacturing, Inc. d/b/a Thermal Pipe Shields is one
competitor, while Defendants Johns Manville Corporation and
its wholly owned subsidiary Industrial Insulation Group, LLC
are the other. Plaintiff's first foray into the calsil
market occurred in the spring of 2018, while Defendants are
the leading producers of calsil who control ninety-eight
percent of the domestic market. Based on Plaintiff's
belief that Defendants are engaging in anticompetitive
conduct to restrict its ability to sell calsil, Plaintiff
filed the Complaint alleging claims under the Sherman Act,
the Lanham Act, and Colorado common law. In response to the
Complaint, Defendants filed a motion to dismiss pursuant to
Fed.R.Civ.P. 12(b)(6) seeking dismissal of all claims because
Plaintiff has failed to state a claim upon which relief can
be granted. For the following reasons, the Court grants
Defendants' motion and dismisses the Complaint without
prejudice.
BACKGROUND
I.
Statement of Facts
The
following are relevant factual allegations (as opposed to
legal conclusions, bare assertions, or merely conclusory
allegations) made by Plaintiff in the Complaint, which are
taken as true for analysis under Fed.R.Civ.P. 12(b)(6)
pursuant to Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009).
Calsil,
short for hydrous calcium silicate, is a mechanical
insulation designed to encapsulate pipes, tanks, and other
equipment in industrial facilities such as oil refineries,
chemical and power generation plants, and pulp and paper
mills. Calsil's physical properties and ability to resist
heat, corrosion, abuse, and fire make it especially suitable
for industrial applications in which heat-resistant
insulation is required or workers may need to walk across the
piping encapsulated by calsil. Because of these unique
characteristics and uses, customers who purchase calsil
demand that the product meet or exceed the requirements set
forth in ASTM C533 Type I, a standard developed by an
international standards organization that publishes material
specifications relied on by engineers to qualify generic
product types.
Johns
Manville Corporation manufactures and sells construction
products, including insulation products. Industrial
Insulation Group, LLC is a wholly owned subsidiary of Johns
Manville Corporation which also manufactures and sells
insulation products. Defendants own and operate the only two
remaining calsil manufacturing plants in North America and
maintain a market share of at least ninety-eight percent of
the United States' calsil market. Defendants have total
annual sales of all of their products of over three billion
dollars, with calsil accounting for approximately fifty
million dollars of total sales.
In
2017, Plaintiff was approached by the owner of BEC Industrial
(Shanghai) Co., Ltd. (“BEC”), a Chinese factory
that had previously produced calsil for Defendants. BEC
offered Plaintiff the chance to be the exclusive United
States importer of BEC calsil. During this period, Defendants
were also trying to persuade Plaintiff to purchase their
calsil. To win Plaintiff's business, Defendants offered
to test the BEC calsil against Defendants' calsil to
determine which product was superior. The test results showed
that BEC's calsil met or exceeded the ASTM allowable
thresholds. Based on these results and other independent
tests, Plaintiff and BEC signed an exclusive agreement in
March 2018.
Plaintiff
began marketing its calsil under the brand-name
TPSX-12™. As part of its marketing strategy, Plaintiff
arranged for its calsil to be tested side-by-side with
Defendants' calsil. Those results indicated that
TPSX-12™ met or exceeded the requirements of ASTM C533
Type I, never contained asbestos (which is relevant as
described below), and outperformed Defendants' calsil in
several categories.
Plaintiff
and Defendants sell their products to national and regional
distributors which then resell the products to industrial
customers or plant operators. Essentially, five major
mechanical insulation distributors dominate most of the
regions in the country. The distributors' customers
require the distributors to carry other construction products
made by Defendants. Defendants' fiberglass products and
expanded perlite products are most relevant here.
Defendants' fiberglass products occupy up to ninety
percent of the market share in many major metropolitan areas
and enjoy a high market share in many areas of the United
States. Defendants are also major suppliers of expanded
perlite pipe and block insulation, which is regularly used as
industrial insulation along the Gulf Coast.
In late
2017, when at least one of Defendants' large customers
expressed an interest in purchasing Plaintiff's calsil,
Defendants began threatening customers that they would not
sell them calsil or any other products if the customers
purchased TPSX-12™. These threats were communicated by
Defendants' sales employees from at least late 2017
through late January 2019. According to Plaintiff, Defendants
made other anti-competitive comments to their customers. The
threats included a warning that Defendants were tracking and
monitoring import records to enable them to watch
Plaintiff's calsil sales. As stated in the Complaint,
Defendants also told customers that Plaintiff's calsil
was “poor quality” and “cannot be trusted
to meet ‘specifications, '” “‘may
have asbestos, '” and was “Chinese, ”
referring to where it was produced.
Plaintiff
sold less than one million dollars of calsil from March 2018
through March 2019. Plaintiff claims that it would have sold
substantially more but for Defendants' threats and other
anti-competitive conduct. Plaintiff also claims
Defendants' actions were intended to perpetuate their
monopoly, and to eliminate the only competitor in the United
States' calsil market. Again, the total domestic calsil
market is approximately fifty million dollars per year, and
calsil is sold in every market in the country.
II.
Procedural History
Plaintiff
filed its Complaint on March 22, 2019. ECF No. 1. Plaintiff
asserted five claims: (1) monopolization in violation of
Section 2 of the Sherman Act; (2) tying in violation Sections
1 and 2 of the Sherman Act; (3) false advertising in
violation of Section 43(a) of the Lanham Act; (4) common law
trade disparagement; and (5) common law tortious interference
with business. Id. ¶¶ 121-66. Defendants
filed the motion to dismiss on May 15, 2019. ECF No. 18.
Plaintiff filed its response on June 5, 2019, in which it
contested the dismissal of the first three claims, but
Plaintiff voluntarily withdrew claims (4) and (5). ECF No.
24. Accordingly, the only issues for the Court to determine
are whether Plaintiff states plausible claims for
monopolizing, tying, and violating the Lanham Act. Defendants
filed their reply on June 14, 2019. ECF No. 25. The Court
held a hearing on the motion to dismiss on June 18, 2019.
LEGAL
STANDARDS
The
purpose of a motion to dismiss under Fed.R.Civ.P. 12(b)(6) is
to test the sufficiency of the plaintiff's complaint.
Sutton v. Utah State Sch. For the Deaf & Blind,
173 F.3d 1226, 1236 (10th Cir. 2008). “To survive a
motion to dismiss, a complaint must contain sufficient
factual matter, accepted as true, to ‘state a claim to
relief that is plausible on its face.'”
Iqbal, 556 U.S. at 678 (quoting Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 570 (2007)). Plausibility, in
the context of a motion to dismiss, means that the plaintiff
pled facts which allow “the court to draw the
reasonable inference that the defendant is liable for the
misconduct alleged.” Id. Twombly requires a
two-prong analysis. First, a court must identify “the
allegations in the complaint that are not entitled to the
assumption of truth, ” that is, those allegations which
are legal conclusions, bare assertions, or merely conclusory.
Id. at 680. Second, the Court must consider the
factual allegations “to determine if they plausibly
suggest an entitlement to relief.” Id. at 681.
If the allegations state a plausible claim for relief, such
claim survives the motion to dismiss. Id. at 679.
Plausibility
refers “‘to the scope of the allegations in a
complaint: if they are so general that they encompass a wide
swath of conduct, much of it innocent, then the plaintiffs
‘have not nudged their claims across the line from
conceivable to plausible.'” Khalik v. United
Air Lines, 671 F.3d 1188, 1191 (10th Cir. 2012) (quoting
Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir.
2008)). “The nature and specificity of the allegations
required to state a plausible claim will vary based on
context.” Kan. Penn Gaming, LLC v. Collins,
656 F.3d 1210, 1215 (10th Cir. 2011). Thus, while the Rule
12(b)(6) standard does not require that a plaintiff establish
a prima facie case in a complaint, the elements of each
alleged cause of action may help to determine whether the
plaintiff has set forth a plausible claim. Khalik,
671 F.3d at 1192.
However,
“[t]hreadbare recitals of the elements of a cause of
action, supported by mere conclusory statements, do not
suffice.” Iqbal, 556 U.S. at 678. The
complaint must provide “more than labels and
conclusions” or merely “a formulaic recitation of
the elements of a cause of action, ” so that
“courts ‘are not bound to accept as true a legal
conclusion couched as a factual allegation.'”
Twombly, 550 U.S. at 555 (quoting Papasan v.
Allain, 478 U.S. 265, 286 (1986)). “Determining
whether a complaint states a plausible claim for relief will
. . . be a context-specific task that requires the reviewing
court to draw on its judicial experience and common
sense.” Iqbal, 556 U.S. at 679. “[W]here
the well-pleaded facts do not permit the court to infer more
than the mere possibility of misconduct, ” the
complaint has made an allegation, “but it has not shown
that the pleader is entitled to relief.” Id.
(quotation marks and citation omitted).
DISCUSSION
Defendants
seek to dismiss the Complaint on three grounds: (1) Plaintiff
has not stated a monopoly claim under the Sherman Act; (2)
Plaintiff has not stated a tying claim under the Sherman Act;
and (3) Plaintiff has not stated a claim based on a violation
of the Lanham Act.[1]The Court analyzes the first and second
grounds for dismissal together because “[t]ying can
support a Sherman Act claim either under § 1, as an
unlawful restraint on trade, or under § 2, as an
unlawful act of monopolization or attempted
monopolization.” Avaya Inc., RP v. Telecom Labs,
Inc., 838 F.3d 354, 397 (3d Cir. 2016). Further, the
parties do not distinguish between Plaintiff's tying
allegations in support of its monopoly claim and
Plaintiff's stand-alone tying claim. See ECF No.
24 at 22 (“We already addressed the validity of the
tying claim in our discussion of monopolization.”); ECF
No. 25 at 18 (“Therefore, as explained in [the section
addressing tying conduct as to Plaintiff's monopoly
claim] above, the Court must also dismiss the stand-alone
tying claim.”). Consequently, the following discussion
evaluates Plaintiff's monopoly claim, including
Plaintiff's tying allegations, and Plaintiff's Lanham
Act claim.
I.
Monopolization Claims
Plaintiff
first claims Defendants created and maintained a monopoly in
the calsil market through exclusionary conduct in violation
of Section 2 of the Sherman Act. Section 2 of the Sherman Act
makes it illegal to “monopolize . . . any part of the
trade or commerce among the several States . . . .” 15
U.S.C. § 2. The purpose of the Sherman Act “is not
to protect businesses from the working of the market; it is
to protect the public from the failure of the market. The law
directs itself not against conduct which is competitive, even
severely so, but against conduct which unfairly tends to
destroy competition itself.” Spectrum Sports, Inc.
v. McQuillan, 506 U.S. 447, 458 (1993).
There
are three elements to a Section 2 monopolization claim. The
first element is a “monopoly power in the relevant
market.” Lenox MacLaren Surgical Corp. v.
Medtronic, Inc. (Lenox I), 762 F.3d 1114, 1119
(10th Cir. 2014). The second element is “willful
acquisition or maintenance of this power through exclusionary
conduct.” Id. In considering whether conduct
is exclusionary “it is relevant to consider its impact
on consumers and whether it has impaired competition in an
unnecessarily restrictive way.” Aspen Skiing Co. v.
Aspen Highlands Skiing Corp., 472 U.S. 585, 605 (1985).
“If a firm has been attempting to exclude rivals on
some basis other than efficiency, it is fair to characterize
its behavior as predatory.” Id. (internal
quotation marks omitted). However, an entity that has
acquired a lawful monopoly is not prohibited outright from
taking advantage of its scale economies because of its size;
such an advantage is “a consequence of size and not the
exercise of monopoly power.” Id. at 597.
Monopoly power under the second element “can be proven
through identification of a relevant produce and geographic
market, with a showing that the defendant had a sufficient
market share and that new competitors would face significant
barriers to entry.” Lenox I, 762 F.3d at 1123
(internal quotation marks omitted). The final element is
“harm to competition.” Id. at 1119
Defendants
argue Plaintiff has failed to plead a monopoly claim because
the Complaint does not establish that Defendants acquired or
maintained a monopoly through “exclusionary conduct,
” the second element. ECF No. 18 at 9. Plaintiff
counters that the following actions, outlined in the
Complaint, show that Defendants engaged in exclusionary
conduct violative of the Sherman Act: tying, exclusive
dealing, refusal to deal, spying, ...