Lubrizol Sued Over Lockhart Acquisition


Z Technologies filed an antitrust suit against Lubrizol, alleging its acquisition of Lockharts wax oxidate business in 2007 resulted in a monopoly and lessened competition, leading to increased prices for oxidates, which are used for rust prevention.

The lawsuit was filed May 18 in the U.S. District Court of the Eastern District of Michigan in Detroit. The five-count complaint alleges unlawful acquisition and monopolization under federal and state antitrust laws, and unjust enrichment under Michigan common law.

Ultimately it is monetary damages rather than injunctive relief we are seeking, said Justin Hakala, attorney with Michigan law firm Morgan & Meyers PLC, which is representing Z Tech. Theres not a specific dollar amount that weve come to yet.

Lubrizols standing policy is to not comment on pending litigation, a company spokesperson told Lube Report.

Z Tech purchases unmodified oxidates that it then resells.

In early 2000, Lubrizol acquired RPM Internationals Alox metalworking additives business, including anticorrosion additives. Lubrizol subsequently relocated production of these additives to its own plant in Painesville, Ohio, plant. According to the lawsuit, after the Alox purchase, Lubrizol and Lockhart were the only remaining substantial manufacturers of oxidates.

Lubrizols plant in Painesville and Lockharts in Flint, Mich., were the only two plants in the United States capable of oxidizing product at pressures high enough to produce quality products, the lawsuit claimed.

In February 2007, Lubrizol purchased Lockharts metalworking product line, including rust preventatives and oxidates. The purchase agreement included non-competition provisions which prevented Lockhart from competing with Lubrizol or engaging in any business that competed with the assets acquired by Lubrizol. Because the provisions were interpreted as preventing Lockhart from leasing its Flint plant to any other company to manufacture oxidates, the plant was eventually shut down.

Entry into the relevant product market is made difficult because of the cost and time required to build a plant capable of producing quality oxidates, obtaining regulatory permits for the plant, the time and cost required for the scientific and highly technical research and development of new products, testing periods associated with developing products, the time required to obtain customer approval for new products as well as other factors, Z Tech said in the lawsuit.

The Redford, Mich.-based, company claimed the Lockhart acquisition had anti-competitive effects on the relevant product and geographic markets. After the acquisition, Lubrizol raised prices on unmodified oxidates by over 70 percent in incremental steps, the lawsuit states. Price increases over this period far exceeded any increase in the cost of raw materials, manufacture, production or delivery of unmodified oxidate.

In February 2009, the Federal Trade Commission intervened in the Lockhart acquisition, and ordered the divestiture of certain assets. The FTC determined the market for modified and unmodified oxidates was extremely concentrated, that Lubrizol and Lockhart dominated the market and jointly accounted for more than 98 percent of all U.S. oxidate sales.

Under the consent order, Lubrizol agreed to allow Lockhart to lease the Flint plant to Additives International, which has since relocated from Evanston, Ill., to Flint. The decree also required Lubrizol to give Additives International a license to manufacture oxidate products and permit it to use certain Lockhart trademarks for two years.

However, Additives International was not able to produce oxidates for sale in a quality and quantity suitable for use by plaintiff and others until early 2011, Z Tech asserts in the lawsuit. After the divestiture, prices for unmodified oxidate remained above the competitive level and in excess of $1 per pound, which remains over 50 percent above the sale price utilized prior to the [Lockhart] acquisition. The divestiture did not restore the market for unmodified oxidates to the competitive state that it had enjoyed prior to the acquisition.

Asked why Z Tech took five years to file a lawsuit, attorney Hakala noted several years passed before the company had an alternative supplier for the oxidates.

I think that generally Z Technologies had the same difficulty that a lot of companies in this industry have – they purchase from Lubrizol, and until Additives International came on in early 2011, there were no other options, he said. For many companies, if they buy a specific product, they just dont want to change, or maybe they buy from both companies, maybe they shop them, or whatever the case may be. Theres a lot of incentive to not sue your supplier. I think thats whats going on in the case of my client and probably in the case of other companies as well.

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