FTC v. Lukens Steel Co.

• Decision Date: 23 June 1978
• Docket Number: Civ. A. No. 74-926.
• Citation: 454 F. Supp. 1182
• Parties: FEDERAL TRADE COMMISSION, Plaintiff, v. LUKENS STEEL COMPANY and United States Steel Corporation, Defendants.
• Court: U.S. District Court — District of Columbia

454 F. Supp. 1182

FEDERAL TRADE COMMISSION, Plaintiff, v. LUKENS STEEL COMPANY and United States Steel Corporation, Defendants.

Civ. A. No. 74-926.

United States District Court, District of Columbia.

June 23, 1978.

COPYRIGHT MATERIAL OMITTED

R. Baylor Rowe, P. Abbott McCartney, and Joseph B. Pritti, Washington, D.C., for plaintiff F. T. C.

Edward W. Mullinix, Schnader, Harrison, Segal & Lewis, Philadelphia, Pa. and James F. Mulligan, Gen. Counsel, Lukens Steel Co., Coatesville, Pa., for defendant Lukens Steel Co.

Dominic B. King, James P. Markle, William J. McKim and Philip J. Sheehe, Pittsburgh, Pa., admitted pro hac vice, for U. S. Steel Corp.

MEMORANDUM

GASCH, District Judge.

In this action, the Federal Trade Commission (FTC) claims that Lukens Steel Company (Lukens) and the United States Steel Corporation (U.S. Steel) violated the cease and desist order issued by the FTC in American Iron & Steel Institute, 48 FTC 150 (1951). The FTC requests, pursuant to sections 5(l), 5(m), and 16(b) of the Federal Trade Commission Act (FTC Act), 15 U.S.C. §§ 45(l), 45(m), and 56(b) (1976), equitable relief and civil penalties¹ for violations of the order. This matter having been tried to the Court on October 13-27, 1977, the Court makes the following findings of fact and conclusions of law in accordance with Fed. R.Civ.P. 52(a).

I. BACKGROUND.

A. Order.

The order in American Iron & Steel Institute, 48 FTC 150 (1951), was issued on August 10, 1951 in settlement of a complaint filed by the FTC against over one hundred steel producers, including Lukens and U.S. Steel. The FTC alleged in the complaint that the steel producers fixed prices through, inter alia, the collusive use of a basing point pricing system and the American Iron and Steel Institute's compilation of pricing factors. The order, in pertinent part, prohibits the steel companies from:

entering into any planned common course of action, understanding, or agreement between any two or more of said respondents, or between any one or more of said respondents and others not parties hereto, and from cooperating in, carrying out or continuing any such planned common course of action, understanding or agreement, to do or perform any of the following things:

(1) Adopting, establishing, fixing, or maintaining prices or any element thereof at which steel products shall be quoted or sold, including but not limited to base prices, the extras which shall be added to, or the deductions which shall be made from, any base price for any specified characteristic, or loading charge or delivery charge or terms of discount, credit, or other conditions of sale.

(2) Collecting, compiling, circulating, or exchanging between or among respondents, or any of them, a list or lists of base prices or of prices by any other designation, or extra charges thereto or deductions therefrom for any specified characteristic or quantity of steel products or services connected therewith used or to be used in computing prices or price quotations of steel products; or using, directly or indirectly, as a factor in computing price quotations or in making, quoting, or charging prices any such list or lists so collected, compiled, circulated, or exchanged.

* * * * * *

(4) Formulating, devising, adopting, establishing, fixing, or maintaining methods or practices of quoting and selling steel products to railroads or other particular classes of customers.

(5) Quoting or selling steel products at prices calculated or determined pursuant to, or in accordance with, any system or formula which produces identical price quotations or prices or delivered costs, or which establishes a fixed relationship among price quotations or prices or delivered costs, or which prevents purchasers from securing any advantage in price in dealing with one or more of the respondents as against any of the other respondents.

* * * * * *

II. . . . acting, individually or otherwise, so as knowingly to contribute to the maintenance or operation of any planned common course of action, understanding or agreement between and among any two or more of the respondents or between any one or more of them and others not parties hereto through the commission of any of the acts, practices or things prohibited by subparagraphs (1) through (6) of paragraph I of this order.

48 FTC at 152-54.

However, the order explicitly exempted certain types of conduct from its terms. It specifically provided that "evidence of uniformity of prices or any element thereof of two or more sellers at any destination or destinations alone and without more" would be insufficient to establish a violation of the order. 48 FTC at 154, III(1). The order also stated that the "Federal Trade Commission is not acting to prohibit or interfere with delivered pricing or freight absorption as such when innocently or independently pursued, regularly or otherwise, with the result of promoting competition." 48 FTC at 154, III(3).

B. Complaint.

On June 18, 1974, the FTC filed this action against Lukens and U.S. Steel. Plaintiff claims that for at least the five years prior to the date the complaint was filed:²

Defendants, in connection with the offering for sale, sale and distribution in interstate commerce of HY-80 and HY-100, have been continuously, for each day of the aforementioned period, engaged in a planned common course of action, understanding or agreement with each other, with each other and with Newport, or each with Newport, to establish, fix, or maintain prices, including elements thereof such as delivery charges or other conditions of sale. Each defendant has also cooperated in, carried out, and contributed to the maintenance or operation of a planned common course of action, understanding or agreement, with each other, with each other and with Newport, or each with Newport, to establish, fix or maintain prices, delivery charges, or other conditions of sale, in a manner prohibited by the Federal Trade Commission's order in Docket 5508.

Complaint ¶ 9. Plaintiff contends that defendants' behavior in connection with the submission of bids to Newport News Shipbuilding and Dry Dock Company for the sale of HY-80 and HY-100 steel plates specifically violated Paragraphs I(1), (2), (4), (5), and II of the order.

C. HY-80 and HY-100 Steel Plate Industry.

The alleged violations of the order arose solely in connection with the submission of bids by Lukens and U.S. Steel for the sale of HY-80 and HY-100 steel plates to Newport News Shipbuilding and Dry Dock Company, a prime contractor of the Government. HY-80 and HY-100 steel plates (HY-steel plates) are highly specialized, special treatment premium quality alloy steel plates used primarily in the construction of combat vessels for the United States Navy.³ HY-steel plates are produced according to specifications established by the Navy, and only steel producers certified by the Navy are permitted to produce HY-steel plates for use in Navy vessels. U.S. Steel, Lukens, Armco Steel Corporation (Armco), and Bethlehem Steel Corporation (Bethlehem) were qualified producers during the period of the alleged violations.⁴

Newport News Shipbuilding and Dry Dock Corporation (Newport News), a Virginia corporation with principal offices, place of business, and shipyards in Newport News, Virginia, is engaged in the construction of combat vessels for the Navy. During the period relevant to this case, Newport News subcontracted with both Lukens and U.S. Steel for HY-steel plates for use in ship construction pursuant to prime contracts with the Navy. Newport News purchased substantial quantities of HY-steel plates from Lukens and U.S. Steel during this period,⁵ of which a significant amount was used in the construction of the U.S.S. Nimitz and U.S.S. Eisenhower, two nuclear powered aircraft carriers.

The Navy and Newport News entered into fixed price incentive contracts during this period. It is important to note that under this type of contract, the Navy assumed the entire target or projected cost. If the total cost exceeded the target cost, then the additional cost was allocated between the Navy and the prime contractor according to a formula specified in each contract. If the total cost exceeded the target cost but not the ceiling price, the Navy bore the major portion of the cost; the prime contractor would be responsible for the entire amount by which the final cost exceeded the ceiling price. However, if the final cost was less than the target cost, a percentage of the difference between the two costs would be awarded to the prime contractor as additional profit. See, e. g., Exh. 11A, at 49.

In awarding subcontracts, Newport News utilized a competitive bidding system. It solicited bids for HY-steel plates by sending invitations to bid, which set forth the sizes, shapes, and quantities of steel to be purchased, to Lukens, U.S. Steel, and, at times, to Armco and Bethlehem. In response, each interested bidder would submit a bid to Newport News. Newport News awarded purchase orders on the basis of the bids received; thus, the bids were crucial to the determination of the award of the contract. It was the practice of Newport News to award the bid to the lowest bidder. Indeed, if Newport News did award a contract to a supplier other than the lowest bidder, it would risk the possibility that the Navy might not reimburse it for the cost of the steel.

Several provisions in the prime contract as well as in the procurement regulations gave the Navy authority to review Newport News' procurement system and individual contracts and otherwise regulate Newport News' subcontracting practices. In particular, the "consent to subcontracts" clause in the prime contract specifically provided the Navy's Supervisor of Shipbuilding with authority to approve individual purchases and to evaluate the overall procurement system. See, e. g., Exhs. 11A, at 102-04; 11B, at 31-32. Price competition was one of the factors the supervisor was required to...