Chase Mfg., Inc. v. Johns Manville Corp.

• Docket Number: 22-1164
• Decision Date: 21 August 2023
• Citation: 79 F.4th 1185
• Parties: CHASE MANUFACTURING, INC., Plaintiff - Appellant, v. JOHNS MANVILLE CORPORATION, Defendant - Appellee. United States of America, Amicus Curiae.
• Court: U.S. Court of Appeals — Tenth Circuit

79 F.4th 1185

CHASE MANUFACTURING, INC., Plaintiff - Appellant, v. JOHNS MANVILLE CORPORATION, Defendant - Appellee.United States of America, Amicus Curiae.

No. 22-1164

United States Court of Appeals, Tenth Circuit

FILED August 21, 2023

Appeal from the United States District Court for the District of Colorado(D.C.No. 1:19-CV-00872-MEH)

Luke Hasskamp(Alexandra Shear and Jarod M. Bona with him on the briefs), of Bona Law, P.C., La Jolla, California, for Plaintiff-Appellant.

Gregory J. Kerwin(Ryan Bergsieker, Allison K. Kostecka, and Lydia Lulkin with him on the brief), of Gibson, Dunn & Crutcher LLP, Denver, Colorado, for Defendant-Appellee.

Patrick M. Kuhlmann, Attorney (Jonathan S. Kanter, Assistant Attorney General; Doha G. Mekki, PrincipalDeputy Assistant Attorney General; Maggie Goodlander, Deputy Assistant Attorney General; David B. Lawrence, Policy Director; Daniel E. Haar and Nickolai G. Levin, Attorneys, with him on the brief), Washington, D.C., for amicus curiae the United States of America in support of neither party.

Before PHILLIPS, MURPHY, and ROSSMAN, Circuit Judges.

PHILLIPS, Circuit Judge.

In this antitrust case, we consider whether the district court erred in granting summary judgment to a monopolist—a company supplying nearly 100% of the relevant market—that had threatened to stop selling needed products to its customers if they bought from a new market entrant offering a superior product for less money.

For decades, Johns Manville Corp.(or JM) was the sole domestic manufacturer and supplier of calcium silicate (or "calsil"), a substance used to make thermal pipe insulation.Thus, it had faced no competition in selling its calsil to thermal-pipe-insulation distributors around the United States.In March 2018, Chase Manufacturing, Inc.(doing business as Thermal Pipe Shields, Inc., or TPS) challenged JM's monopoly status by entering the calsil market with a superior and less expensive product.¹JM responded by threatening distributors that it would not sell to them if they bought TPS's competing calsil.The threats had the desired effect.By August 2021, more than three years after TPS's market entry, JM retained over 97% of the domestic calsil market.

TPS sued under the Sherman Act, alleging that JM had unlawfully (1) maintained its monopoly and (2) tied the availability of its insulation products to distributors' not buying TPS's calsil.The district court granted summary judgment for JM.Though we affirm some of the district court's rulings, we hold that it erred in finding no genuine issues of material fact on whether JM unlawfully maintained its monopoly after TPS's market entry.So we reverse and remand.

BACKGROUND

I.Factual Background

This case concerns an important product in American industry: thermal pipe insulation.Many industrial facilities, including power plants and oil refineries, use pipes to transport materials at temperatures up to 1200 degrees Fahrenheit.To protect against dangers associated with superheated pipes, these facilities line their pipes with thermal insulation resistant to high temperatures.

Until the 1970s, industrial facilities preferred asbestos insulation for their thermal pipes.But since then, these facilities have transitioned to safer alternatives, including calsil.Calsil is "hydrous calcium silicate" that can be form-fitted for diverse sizes and shapes of industrial equipment, such as pipes and tanks.It is a desirable substance for insulation because it is inherently heat-resistant, durable, noncombustible, and anticorrosive.

JM is a leading manufacturer of thermal pipe insulation.It sells a variety of insulation products manufactured from calsil, mineral wool, fiberglass, expanded perlite, and thin blanket.JM is the exclusive manufacturer of calsil in the United States, operating plants in Colorado and Louisiana.²Marketed under the brand name Thermo-1200, JM's calsil complies with the performance specifications set by the American Society for Testing and Materials.³Federal regulations use these ASTM standards to test thermal insulation.

Until 2018, JM was not only the sole domestic calsil manufacturer but also the exclusive domestic calsil supplier.It sold calsil to thermal-pipe-insulation distributors in the United States, including the five largest: Distribution International, Inc.; Specialty Products & Insulation Co.; General Insulation Co.; MacArthur Co.; and Bay Insulation Supply.⁴In turn, these distributors sold calsil to industrial users and contractors based on project specifications.From 2016 to 2021, JM sold about 83% of its calsil to distributors.Distribution International's senior vice president of strategic sourcing, Robert Hlavenka, testified that before 2018, the distributor bought all its calsil from JM, totaling up to $15 million in annual purchases.

In March 2018, TPS entered the U.S. calsil market with a competing product under the brand name TPSX-12.TPS had its calsil manufactured by a Chinese factory and then imported into the United States.⁵As did JM's calsil, TPS's complied with ASTM standards, withstood temperatures up to 1200 degrees Fahrenheit, and allowed for formfitting for various industrial uses.But TPS's calsil came with other advantages.For one, TPS priced its calsil 20 to 25% less than JM priced its Thermo-1200.For another, because TPS used a different manufacturing process than JM, TPS's calsil was stronger and more flexible.

Distributors noted TPS's market entry and its competing calsil.Hlavenka described that Distribution International had "moderate" interest in TPS's calsil and "believe[d] that the TPS product is a superior product."⁶In fact, in early 2020, Distribution International became the exclusive supplier of TPS's calsil in the Gulf Coast region.And, on behalf of 4-State Supply, Inc., a smaller distributor, Joseph Guest testified that TPS's calsil was "top of the line," while acknowledging that it could "take[ ] a while to get."

Other distributors also bought some of TPS's calsil.Bay Insulation, one of the five largest distributors, agreed to serve as TPS's exclusive calsil supplier for two California regions.And two smaller distributors, APi Distribution and GLT Fabricators, reached similar exclusivity agreements with TPS for small regions elsewhere in the United States.⁷All told, between 2018 and August 2021, TPS sold more than $2.3 million in calsil to nine distributors, including some to each of the five largest distributors.Twenty-two other distributors kept buying calsil exclusively from JM.

JM immediately recognized the threat TPS's less expensive and superior calsil posed to its market share.An internal JM email, sent days after TPS's market entry, advised JM's sales force this way: "If we need to bring the sword, then 'If you [the distributors] choose to buy material from Thermal Pipe Shields, then that will significantly alter your company's relationship with Johns Manville as a mechanical insulation partner.' "In another March 2018 internal email, a JM manager coached his sales team to stress TPS's "foreign manufacturing," JM's superior "support after the sale," Thermo-1200's better "water-resistance," and TPSX-12's lack of "testing."

JM closely monitored TPS's calsil sales to distributors and worried about the competition.For instance, in a June 2018 internal email—subject line: "MacArthur buying from TPS???"—a JM manager lamented the large distributor's possibly having bought calsil from TPS.And in a November 2018 internal presentation, JM employees conceded that Thermo-1200 "h[e]ld no competitive quality or price advantage" over TPSX-12.They also posed a market-share hypothetical envisioning that JM could lose significant market share against TPS's less expensive and superior calsil.

JM's internal concerns presaged its external conduct.JM publicly responded to TPS's market entry in three ways: (1) by pressuring distributors not to buy TPS's calsil, (2) by altering the terms of its distributor rebate agreements, and (3) by denigrating the quality of TPS's calsil to distributors by falsely raising concerns about asbestos and silica particles.⁸We briefly describe each in turn.

First, the summary-judgment record shows that JM employees told distributors that JM would not sell its products to them if they bought calsil from TPS.For example, in a March 2018 email to Distribution International employees, a JM manager warned,

You along with your team are aware of the potential dangers and liabilities you may face in selling this imported product . . . .You and your team are free to promote and sell any products you wish; however, the breadth and terms of our partnership could potentially change with your promotion and distribution of such imported product.

Hlavenka likewise testified about JM's pressure tactics.He recalled that JM's Hal Shapiro, a former global sales manager, had threatened to shift JM's calsil business in Houston to a competitor of Distribution International if it continued to buy TPS's calsil.⁹

As for JM's threats to 4-State, Guest recalled a JM sales representative (Chad Meyer) telling him at an October 2018 trade show that "if [4-State] continued to buy Thermal Pipe Shield's, TPS's Calsil, [4-State] would no longer be able to purchase Johns Manville Calsil."Guest testified that Meyer told him that this message "c[ame] from upper management" at JM.¹⁰Guest also recalled that, about a week after the trade show, JM stopped shipping products to 4-State's Wichita branch and started shipping to its Lenexa branch.But Guest acknowledged that JM later discounted 4-State's calsil purchases to offset the increased shipping costs from the Lenexa branch.

The summary-judgment record also contains information about JM's pressuring other distributors, including Bay Insulation, Specialty Products, General Insulation, and APi Distribution.In a December 2018 email, Bay Insulation employees reported that "[JM is] taking a hard line against selling anyone who is...