Penn Galvanizing Co. v. Lukens Steel Co.

59 F.R.D. 74
CourtDistrict Court, E.D. Pennsylvania
DecidedMarch 12, 1973
DocketCiv. A. No. 71-820
StatusPublished
Cited by9 cases

This text of 59 F.R.D. 74 (Penn Galvanizing Co. v. Lukens Steel Co.) is published on Counsel Stack Legal Research, covering District Court, E.D. Pennsylvania primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Penn Galvanizing Co. v. Lukens Steel Co., 59 F.R.D. 74 (E.D. Pa. 1973).

Opinion

MEMORANDUM AND ORDER

NEWCOMER, District Judge.

Presently before the Court is the defendant’s motion for Summary Judgment as to Count I of the Complaint. Count I of the Complaint attempts to allege an unlawful tie-in by the defendant, Lukens Steel Company, between the method of ultrasonically testing HY steel plates and the price charged by Lu-kens for such plates. Count I alleges that Lukens imposed, as a “condition” to its sales of such plates to Electric Boat, Division of General Dynamics, at Lu-kens’ published prices, that Electric Boat agreed to accept a “static method” of testing. (See Plaintiff’s Complaint IT 21.)

Count I also alleges that, “by reason of the foregoing conditions,” Lukens has monopolized and attempted to monopolize the business of ultrasonically testing HY steel plates (Plaintiff’s Complaint ¶ 22). Clearly, this so-called “tie-in” is the basis for Penn Galvanizing’s monopolization charge since the tie-in is alleged to be the means by which Lukens monopolized and attempted to monopolize the testing market. (See Plaintiff’s Memorandum in Support of Motion for Preliminary Injunction, p. 2.) The defendant, for the purposes of this motion only, has addressed itself solely to the tie-in theory, its premise being, that if the tie-in theory fails, there is no remaining basis for the monopolization allegation.

The basic facts on which Count I is based appear to be clear and not in dispute. Lukens is engaged in the business of manufacturing, selling, and ultrasonically testing HY-80 steel plates. (Plaintiff’s Complaint ¶,¶13 and 14.) Plaintiff, Penn Galvanizing Company, is also engaged in the business of ultrasonically testing HY-80 steel plates. (Plaintiff’s Complaint ¶ 3.) Electric Boat, a Division of General Dynamics, is a shipbuilder engaged in the construction of nuclear submarines. (Plaintiff’s Complaint ¶ 17.) HY-80 steel plates are used primarily in the construction of nuclear submarines, and Electric Boat is a substantial purchaser of such plates and a major purchaser of the ultrasonic testing of such plates. (Plaintiff’s Complaint ¶¶ 3, 4, and 17.)

For the purposes of this case, there are two basic methods of ultrasonically [76]*76testing HY-80 steel plates: The static method and the scanning method. (Plaintiff’s Complaint ¶ 8.) Both the static method and the scanning method of testing are performed by the same personnel with the same basic electronic equipment, and both Penn Galvanizing and Lukens are equally qualified, in terms of equipment and personnel, to perform either method of testing. (Plaintiff’s Complaint ¶9; Notes of Testimony of the hearing held on June 14-15, 1971 on Plaintiff’s Motion for Preliminary Injunction, p. 2-169.)

The scanning method of testing is more stringent than the static method. It inspects a larger area of a plate, may result in the discovery of a greater number of discontinuities in a plate, and thus may result in a higher rejection rate for plates so tested. (Plaintiff’s Complaint |f 10; Exhibit D-l with reference to the hearing of June 14-15, 1971; N.T. 1-164 to 1-167, and 2-166.)

The rate of rejection of plates due to testing is a direct component of Lukens’ costs of manufacturing such plates. (N.T. 2-48 and 2-166.)

Lukens’ costs of manufacturing HY-80 steel plates to meet the scanning method of testing are usually higher than its costs of manufacturing the same plates to meet the static method of testing. (N.T. 1-165 to 1-178 and 2-166.)

The price quoted by Lukens for HY-80 steel plates has varied from time to time with the stringency of the ultrasonic testing required by the purchaser, and Lukens has on occasion quoted Electric Boat a higher price for HY-80 steel plates if such plates were going to be required to meet the scanning method of testing. (N.T. 1-165 to 1-178.) '

There is no dispute that Lukens has quoted a higher price for HY-80 steel plates if the plates are going to be required to meet a more stringent ultrasonic testing requirement than that to which Lukens’ published price was geared. As The Honorable Alfred L. Luongo found in denying Penn Galvanizing’s Motion for Preliminary Injunction, the Navy specification governing the manufacture and testing of HY-80 steel plates — MIL-S-16216G—provides for the static method of testing. (N.T. 2-165.) Lukens’ price for such plates was geared to the rejection rate which could be expected when the static test was used.

For many years during the period in question, Electric Boat specified its own testing procedure. This procedure was set forth in Electric Boat Standard Shipyard Procedure 3.22 and was similar to the scanning method of testing required by the Navy specification for plates in excess of 2% inches in thickness. (N.T. 2-167.)

In 1966, Lukens informed Electric Boat that, because of the significantly greater rejection rate experienced when HY-80 plates are tested to Procedure 3.-22, it would increase its prices for plates that were required to meet this more stringent testing procedure. (Exhibit D-l.) It is this price increase — or the price differential between plates ordered to the testing requirements by the Navy specification and those ordered to the more stringent requirements of Procedure 3.22 — that serves as the basis for Penn Galvanizing’s allegation of a tie-in. The complaint alleges that “defendant Lukens has unlawfully tied-in the ultrasonic method of testing to a lower, more favorable price for HY steel plates.” (Plaintiff’s Complaint ¶ 22, emphasis added.)

The defendant argues that Penn Galvanizing’s tie-in theory is patently misconceived. The Supreme Court has indicated that a tie-in involves “an agreement by a [seller] to sell one product but only on the condition that the buyer also purchases a different (or tied) product.” Northern Pacific Ry. Co. v. United States, 356 U.S. 1, 5, 78 S.Ct. 514, 2 L.Ed.2d 545 (1958). The defendant argues that there is no such condition [77]*77alleged here. Quite simply, says the defendant, Penn Galvanizing has not alleged that Lukens conditioned the sale of its HY-80 steel on the buyer’s purchase of the testing service from Lukens. On the contrary, Lukens’ Vice President-Sales testified categorically at the preliminary hearing in June of 1971, that Lukens will and does sell HY-80 steel plates with or without ultrasonic testing to be performed by Lukens, and that such price which Lukens charges for the steel in no way depends on who does the ultrasonic testing (N.T. 2-9 to 2-10). This testimony was uncontradicted.

The defendant summarizes the basis for Penn Galvanizing’s tie-in theory as follows: Lukens increased its price of HY-80 steel because the scanning method was specified by Electric Boat; this resulted in Electric Boat’s abandoning the scanning method in favor of the less-stringent static method; and, since Penn Galvanizing will not test by means of the static method, it lost Electric Boat’s testing business. The defendant argues that the fatal flaw in this theory is its failure to recognize that the price of the steel had no economic or competitive impact on the testing market. Which method of testing was required by Electric Boat had nothing whatsoever to do with who did the testing. Electric Boat’s specification of the static method gave Lukens no competitive advantage in the market for Electric Boat’s testing business. Penn Galvanizing has the equipment and personnel necessary to perform the static method and is fully able to compete with Lukens for Electric Boat’s testing business.

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