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CHATHAM BRASS CO. v. HONEYWELL INC.

March 25, 1981

CHATHAM BRASS CO., INC., Plaintiff,
v.
HONEYWELL INC., Defendant



The opinion of the court was delivered by: CONNER

OPINION AND ORDER

This action was brought under Sections 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15 and 26, seeking damages and injunctive relief for alleged violations of Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2, and Section 2(a) of the Robinson-Patman Act, 15 U.S.C. § 13(a). The case is presently before the Court on defendant's motions to dismiss the complaint for failure to state a claim, Rule 12(b)(6), F.R.Civ.P., and to dismiss the third cause of action for failure to join necessary parties, Rule 12(b)(7), F.R.Civ.P.

The complaint

 The complaint alleges that plaintiff Chatham Brass Co., Inc., a New Jersey corporation ("Chatham"), engages in two related lines of business: manufacturing of heating and air-conditioning equipment and selling to wholesale distributors electrical parts used by building contractors in installing residential heating and air-conditioning equipment. Defendant Honeywell, Inc. ("Honeywell") manufactures electrical equipment, including controls which automatically regulate the operation of residential heating and air-conditioning equipment ("controls"). Honeywell's line of controls includes (1) controls intended to be installed by equipment manufacturers in newly-manufactured equipment; (2) replacement controls, to be substituted for old or defective controls in existing equipment; and (3) general purpose controls, which may be used in a wide variety of applications. Replacement and general purpose controls are packaged individually. Under Honeywell's stated pricing policy, manufacturers of heating and air-conditioning equipment may purchase equipment from Honeywell at an Original Equipment Manufacturers' ("OEM") price, a price 20-40% lower than the wholesale price charged to distributors who purchase controls for resale. The complaint charges that although, under the terms of Honeywell's pricing policy, buyers seeking to purchase controls for resale should be charged the wholesale price, certain businesses competing with Chatham in the distribution aspect of Chatham's business have been purchasing controls for resale at the OEM price, while Chatham has been barred by Honeywell since May 7, 1976 from purchasing at other than the wholesale price. In addition, Chatham contends that its competitors have been granted rebates and "policy credits," while Chatham has been denied such benefits. Chatham states that it has thereby been forced to purchase controls from other, favored distributors, who, having purchased controls from Honeywell at the OEM price, can resell them to Chatham at a price lower than the wholesale price set by Honeywell. The complaint indicates that the favored distributors receive these pricing benefits from Honeywell in return for their agreement to limit their resales of Honeywell controls to the Northeast Zone (defined as the United States east of Pittsburgh, Pennsylvania and north of Virginia), a region which Honeywell allegedly seeks to saturate with its products.

 In the first cause of action, Chatham asserts that Honeywell's actions amount to discriminations in price between similarly situated purchasers, resulting in a substantial lessening of competition among distributors of controls, a tendency to create a monopoly in the manufacture and sale of controls and impairment of Chatham's ability to compete with other distributors of controls, all in violation of Section 2(a) of the Robinson-Patman Act.

 In the second cause of action advanced in the complaint, Chatham contends that Honeywell has attempted to monopolize the controls manufacturing market in the Northeast Zone by:

 (1) prohibiting resale of its controls outside the Northeast Zone;

 (2) prohibiting resale to third parties who were believed by Honeywell to be reselling outside the Northeast Zone;

 (3) selling controls to customers other than Chatham at extremely reduced prices due to trade-in allowances, quantity discounts, policy credits, rebates, extended billing terms and additional control features;

 (4) discriminatorily applying the two-tier OEM and wholesale price system by granting OEM status to purchasers who Honeywell knows or should know are buying for resale rather than for incorporation into manufactured products, and discriminatorily granting rebates and "policy credits" to (1) induce purchasers to buy and distribute large quantities of Honeywell controls, leading to saturation of the Northeast Zone with Honeywell products; and (2) favor those who dealt solely with Honeywell and who agreed to limit their sales to the Northeast Zone, thus contributing to saturation of that market.

 Chatham asserts that by these means Honeywell has gained control of 60%, measured by gross sales, of the market, for controls in the Northeast Zone, 75% of the market for general purpose and replacement controls in that region, and 90% of the sub-market for general purpose and replacement thermostats for furnaces, boilers, unit heaters and central air-conditioning units. Chatham alleges that it has been injured by these anticompetitive acts in the controls manufacturing market because the result of these acts has been to increase the cost to Chatham of purchasing controls for distribution.

 In the third cause of action, Chatham charges that Honeywell has conspired with certain of Chatham's competitors, who are not identified, to enforce Honeywell's OEM/wholesale dual pricing system in a discriminatory manner. In particular, Chatham alleges that:

 (1) Honeywell and Chatham's competitors have agreed that Honeywell will sell and the alleged co-conspirators will purchase heating and air-conditioning equipment controls at OEM prices, although both seller and buyer knew that the co-conspirators did not intend to install these controls in equipment to be manufactured by them; and

 (2) the purpose of the alleged conspiracy has been to establish a distribution network in the Northeast Zone which would saturate that region with Honeywell controls.

 As a result, the complaint recites, Honeywell has engaged in discriminatory pricing favoring distributors other than plaintiff, prices of controls have stabilized at noncompetitive levels and Chatham has been forced to purchase controls at prices higher than those it otherwise ...


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