O. Hommel Co. v. Ferro Corp.

Citation659 F.2d 340
Decision Date23 September 1981
Docket NumberNos. 80-2062,80-2723,s. 80-2062
Parties1981-2 Trade Cases 64,264 O. HOMMEL COMPANY, Appellee, v. FERRO CORPORATION, Appellant.
CourtU.S. Court of Appeals — Third Circuit

George I. Meisel (argued), Squire, Sanders & Dempsey, Cleveland, Ohio, for appellant- David B. Buerger (argued), Martha Z. Zatezalo, Buchanan, Ingersoll, Rodewald, Kyle & Buerger, Professional Corp., Pittsburgh, Pa., for appellee.

; Miles W. Kirkpatrick, Morgan, Lewis & Bockius, Washington, D. C., Arthur J. Schwab, Reed, Smith, Shaw & McClay, Pittsburgh, Pa., of counsel.

Before GIBBONS, HUNTER and GARTH, Circuit Judges.

OPINION OF THE COURT

GARTH, Circuit Judge.

The O. Hommel Company brought suit against the Ferro Corporation, claiming that Ferro had violated § 2 of the Sherman Act, 15 U.S.C. § 2 (1976) and § 2 of the Clayton Act as amended by the Robinson-Patman Act, 15 U.S.C. § 13 (1976). Between 1973 and 1977, Ferro sold porcelain enamel frit to three customers at a price lower than the price it charged other customers, and below its average total cost. The district court refused to enter a directed verdict for Ferro, and the jury found that Ferro had violated the Robinson-Patman Act, 15 U.S.C. § 13, but not the Sherman Act. Ferro's subsequent motion for judgment notwithstanding the verdict on the Robinson-Patman count was denied.

We hold that there was insufficient evidence upon which to predicate Robinson-Patman liability, and thus we reverse and direct that judgment be entered for Ferro.

I.
A.

Both Ferro Corporation and O. Hommel Corporation (Hommel) manufacture and sell two kinds of frit. Porcelain enamel frit is the basic ingredient in the coating of such products as bathtubs, stoves, washing machines and refrigerators. These frits:

are sold by plaintiff and defendant in conjunction, at times, with other frits and always with "additions" or "additives" of clay, electrolytes and other substances necessary to produce a porcelain enamel coating with the buyer's desired properties. The frits and additions or additives are assembled by the customer on a pre-determined formula in what is called a "batch" which is milled or ground with water to produce a porcelain enamel "slip". The slip is applied to the steel appliance part by spraying, dipping or flow coating. It is then dried and fused by heat which produces the porcelain enamel finish.

I App. at 55-56.

The companies also manufacture ceramic frit which is the basic ingredient in the glaze coating on products such as dishes. The jury's verdict on Robinson-Patman discrimination, however, was based only on sales of the porcelain enamel frit. 1 There is no major difference in the method of manufacturing the two types of frit (II App. at 413), and "generally speaking" the Ferro and Hommel production methods were the same. (II App. at 416).

Hommel has one plant in Carnegie, Pennsylvania. Frit (both porcelain enamel and ceramic) is its principal product, constituting 53% to 68% of sales. Its net worth is about.$2.5 million, and its annual sales during the 1973 to 1977 period generally were in the range of $7,000,000. Hommel's income before taxes increased from $12,902 in 1973 to $256,615 in 1977. (IV App. at 212-16). Its gross profits on the sale of porcelain enamel frit were approximately $475,000 in 1973 and $540,000 in 1977, although when selling, laboratory, and general and administrative expenses were allocated, it showed net losses each year. (IV App. at 217-21). Its net loss, however, on these frit sales was.$19,000 in 1977 compared to $259,000 in 1973. Id.

Ferro is a multinational corporation with several divisions. Its net worth is about $150,000,000 and during the applicable period its sales averaged $334,000,000. Ferro manufactures frit in the United States at plants in Los Angeles, Nashville, and Cleveland. The alleged illegal sales all concerned frit manufacture at the latter two plants.

There are five manufacturer-sellers of porcelain enamel frit. Ferro is the largest producer and Hommel is one of the two smallest. Chicago Vitreous and Pemco, the next two largest manufacturers after Ferro, are both divisions of multinational conglomerates larger than Ferro. During the 1973-77 period, the years during which the alleged violations occurred, the sales of porcelain enamel frit (in thousands pounds) were as follows:

                                         Chicago
                      Industry   Ferro   Vitreous
                      --------  ------  ----------
                1973  180,188   76,365    41,064
                1974  144,243   61,995    32,905
                1975  111,484   46,507    27,804
                1976  125,936   51,067    30,915
                1977  134,397   54,200    31,921
                                        Ingraham-
                       Pemco    Hommel  Richardson
                      --------  ------  ----------
                1973   38,086   12,247    12,426
                1974   31,628    9,278     8,437
                1975   24,816    6,480     5,877
                1976   30,907    7,615     5,432
                1977   32,662    9,162     6,452
                

These figures resulted in the following market shares for sales of porcelain enamel frit:

                             Chicago                  Ingraham-
                      Ferro  Vitreous  Pemco  Hommel  Richardson
                      -----  --------  -----  ------  ----------
                1973  42%    23%       21%      7%        7%
                1974  43     23        22       6         6
                1975  42     25        22       6         5
                1976  41     25        25       6         4
                1977  40     24        24       7         5
                

These figures do not include production by four concerns that produce porcelain enamel frit for their own production needs. (III App. at 617).

As can be seen from the production figures, during the 1973 to 1975 period the frit industry went into a steep decline from which it only partially recovered. The 1977 porcelain enamel frit production was less than 75% of the 1973 production. Ferro suffered a 29% loss of sales during the five year period, and its market share fell from 42% to 40%. Hommel had a 25% decline in sales during that same period, and a 7% market share in both 1973 and 1977. Only part of the decline in sales can be attributed to the 1974 recession. The porcelain enamel frit industry was facing increasing competition from other products. Paint and plastic products were being substituted for porcelain enamel frit. An increase in the imports of products to which frit is applied, also hurt the demand for domestic frit.

Prices for frit generally rose during the 1973 to 1977 period. (See, e. g., IV App. at 393). All five of the firms had published price lists, but neither Hommel nor Ferro put all their price quotations on their published lists. (II App. at 341). Ferro also had a confidential, "special price list" for porcelain enamel frit. (IV App. at 15-22, Joint Exhibits 10-13). Prices varied with the type of porcelain enamel frit sold.

B.

Robinson-Patman liability was based on sales to three customers: General Housewares, Briggs, and General Electric. Porcelain enamel frit was sold to these customers below the published list price and below Ferro's average total cost (III App. at 484-488), 2 but above Ferro's average variable cost (which Ferro approximates as its direct manufacturing cost). 3 (Joint Exhibits 718, 719, IV App. at 392d-394).

The discriminatory sales made to General Housewares, Briggs and General Electric constituted no more than 5% of Ferro's national porcelain enamel frit sales during this 1973-1977 period, (Ferro brief at 7), and 2% of the domestic sales made by all frit companies during this period. Id.

1. General Housewares

General Housewares manufactures pots and pans. In 1966 Ferro convinced General Housewares to discontinue being a self-smelter of frit. Between 1973 and 1977 Ferro's frit sales to General Housewares declined about 40%, from 5,660,000 pounds to 3,650,000 pounds. As Ferro's marketing manager explained, in order to sell to a firm that was a self-smelter, as General Housewares had been, prices had to be very close to direct manufacturing costs. Although General Housewares had discontinued its production of frit, it could reestablish its smelting operation for less than $500,000. (III App. at 618). General Housewares was also very resistant to high frit prices because the domestic pot and pan business faced "tremendous foreign competition." (III App. at 617). Several American companies in the field including at least one former Ferro customer had gone out of business. Hommel had never sold any frit to General Housewares.

2. Briggs

Briggs, a bathtub manufacturer, had been a Ferro customer for many years. In 1974, Briggs moved its plant and made Hommel its frit supplier because Hommel frit could be applied at a lower, cost-saving temperature. Quality problems developed at the new Briggs plant the enamel began to flake off the steel. The president of Briggs testified that in searching for a solution to this problem, he decided to purchase frit again from Ferro, although he did not discontinue purchasing the groundcoat from the same supplier. Ferro thereafter supplied half of Briggs's frit requirements. The frit sold to Briggs was identical to other frit sold by Ferro to other customers under a different label and at a higher price. It was later determined that the steel in the Briggs tubs was faulty, and Briggs considered resuming the purchase of frit from Hommel. Briggs demanded from Hommel a price competitive with Ferro's price, price protection for four, six or more months, and mentioned "something special" given to Briggs by Ferro which turned out to be yearly price protection, assured by Ferro on a year-to-year basis. Hommel never offered any price protection and did not sell to Briggs after 1974.

3. General Electric

In April, 1976 Ferro extended a 5% discount to General Electric on certain frits if General Electric would buy 6,000,000 pounds of frit during 1976. (IV App. at 362-364). General Electric annually purchased approximately 15,000,000 pounds of frit and had obtained 4,500,000 pounds from Ferro in 1975....

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