Wednesday, May 14, 2003

Antitrust news: 3M

Forget Microsoft, 3M is the new hot monopolist:

A California court has been asked to decide a sticky legal question: whether an alleged scheme by technology giant 3M Co. to control the market for transparent tape cost the state's consumers millions of dollars.

The lawsuit, filed Tuesday in Los Angeles Superior Court, draws on the same allegations made against 3M in a 1997 federal anti-trust action by LePage's Co., its main competitor in the $800-million U.S. cellophane tape market.

In 1999, a federal jury in Philadelphia awarded $68.4 million in damages plus interest to LePage's, which is owned by privately held Conros Corp. of Toronto, and ordered 3M to dismantle a retail incentive program aimed at boosting tape sales.

In March, a U.S. appeals court upheld the verdict, but 3M -- whose products range from sandpaper and industrial adhesives to drugs and Post-It notes -- said it will ask the U.S. Supreme Court to review the decision.

LePage's president Navin Chandaria said he, too, planned to return to court to ask for sanctions against 3M, alleging the $16 billion company has found "legal ways of doing the same thing to violate the spirit of the law."

A spokesman for 3M had no immediate comment.

The California class action by tape consumer Elaine Culotti accuses 3M of violating the state's anti-trust and unfair business practices laws to protect its monopoly and restrict the availability of cheaper tape brands statewide.

Culotti's lawsuit contends that 3M accomplished this by offering rebates and lump-sum cash payments to retailers who agreed to buy several 3M lines and to meet retail sales goals.

Kmart, Staples, Sam's Club and other retailers who accepted the incentives canceled their tape purchases from LePage's and Tesa Tuck Inc. to meet 3M's sales targets and avoid losing the price breaks, the lawsuit alleged.

"What 3M did to LePage's had an impact on consumers in California -- namely, lack of consumer choice and increased prices for Scotch tape," Culotti's attorney Kevin Roddy said.

The California lawsuit contemplates a class of "hundreds of thousands of consumers" and damages in the millions, he said.

CAC plans to file an amicus brief in support of 3M's forthcoming Supreme Court petition. Contrary LePage's assertion above, 3M is not violating "the spirit of the law." Indeed, 3M's underlying conduct—utilizing its wide product line to increase tape sales—is not illegal under the Sherman Act or any other law. The trial jury and the Third Circuit decided to invent new law on the fly by deciding to punish 3M simply for acting in its economic self-interest. What the article above omits is the fact that LePage's still dominates the so-called "store brand" tape market, the market which they based their antitrust lawsuit on (3M dominates its own "Scotch" brand, which is a redundant statement since Scotch is a trademark.) LePage's sued to avoid having to compete in the marketplace. The resulting jury verdict was based on nothing more than speculation: If 3M is allowed to compete, LePage's might lose market share. This new private lawsuit is based on this same non-objective legal theory.

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