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February 27, 1973

Power Replacements Corp.
Air Preheater Co., Inc. and Combustion Engineering, Inc. Power Replacements, Inc. v. Air Preheater Co., Inc. and Combustion Engineering, Inc.

Masterson, D.J.

The opinion of the court was delivered by: MASTERSON




 The Parties and the Court's Jurisdiction.

 1. These are two separate antitrust actions which were consolidated for trial, pursaunt to, F.R.C.P. 42(a) by order dated December 8, 1970.

 2. The plaintiff in Civil Action No. 70-3481 is Power Replacements, Inc., a California corporation incorporated in 1963 (hereafter "PRI"). PRI's production facilities have at all times been located in Costa Mesa, California. (Stipulation of Uncontested Facts in Final Pretrial Order (hereafter "Stip.") PP 2, 15).

 3. The plaintiff in Civil Action No. 43604 is Power Replacements Corp., a Pennsylvania corporation incorporated in 1966 (hereafter "PRC"). PRC's production facilities have at all times been located in Montgomeryville, Pennsylvania. (Stip. PP 1, 15).

 4. PRC was incorporated when the decision was made by PRI to build a plant in Pennsylvania to service the business in the East. The reason for having two separate corporations was to permit employees of the two different operations to own stock in the business for which they were working. (Wheeler N.T. 182).

 5. From the time when PRC was incorporated in 1966 PRI and PRC have had separate production facilities, separate books and records, different officers and employees, they have generally operated in different parts of the country and they have filed separate tax returns. The two plaintiff corporations have used different internal pricing sheets in figuring out their bids and the costs of production and selling costs of the two corporations are different. (Jamieson N.T. 95-97; Def. Exs. 105-108, 200-206, 220; Pl. Ex. 148).

 6. Defendant The Air Preheater Company, Inc. (hereafter "Air Preheater") is a Delaware corporation which manufactures and sells throughout the United States, among other products, a device known as an air preheater, together with replacement parts for the air preheater including a replacement part referred to as replacement element. (Stip. P 3).

 7. Defendant Combustion Engineering, Inc. is a Delaware corporation which owns all of the stock of defendant Air Preheater. (Stip. P 3).

 8. All of the parties are engaged in commerce among the several states. (Stip. P 5).

 9. This Court has jurisdiction over both of the consolidated actions by virtue of 15 U.S.C. ยงยง 15 and 26, the court has jurisdiction over both defendants and venue is proper in this Court. (Stip. P 6).

 The Product Involved.

 10. The two plaintiffs have alleged that the defendants violated Sections 1 and 2 of the Sherman Act (15 U.S.C. Sections 1 and 2) and Section 2a of the Robinson-Patman Act (15 U.S.C. Section 13(a), in connection with the sales of replacement element for installation in air preheaters. Neither complaint herein makes any allegations of unlawful activity in the manufacture or sale of air preheaters themselves.

  11. The parties have stipulated that the actions involve a controversy arising out of plaintiffs' sales of replacement element in competition with Air Preheater. (Stip. P 11).

 12. For an understanding of the issues involved in this case, however, a description of the air preheater is necessary. An air preheater is an auxiliary device used in connection with a fossil-fueled steam generating boiler -- i.e., one which uses coal, natural gas or oil as its fuel. The basic function of an air preheater is to reclaim a portion of the heat which would otherwise be lost up the boiler exhaust stack and utilize that heat to raise the temperature of the air entering the boiler for the combustion process. (Stip. P 7, Def. Ex. 312).

 13. The original air preheater was a tubular device, of a type generically referred to as a recuperative air preheater. The hot exhaust gasses passed through a huge bundle of stationary tubes and the cold incoming air passed over these tubes and absorbed the heat transmitted through the wall of the tubes. (Kelley Dep. 35-37; Jamieson N.T. 36).

 14. A different type of air preheater, the Ljungstrom, was invented in 1925 and was patented. It was generically a regenerative air preheater. (McKee N.T. 202).

 15. The Ljungstrom air preheater is manufactured and sold in various sizes and with various specifications. Its main parts are a rotor which contains the heating element, the rotor housing, the rotor drive mechanism, and various supporting and connecting structures. The heating element itself consists of corrugated strips of steel, welded in honeycomb fashion and built into pie-shaped sections for insertion into the rotor, where they are arranged in several layers. The honeycomb arrangement provides a very large surface within a relatively small space for the efficient transfer of heat. (Stip. P 9).

 16. In the Ljungstrom air preheater the rotor, containing the heating elements, rotates slowly first through the exhaust gas and then through the incoming air. The heating element absorbs heat from the exhaust gas as it passes through that field and then the incoming air is heated when it passes over the hot heating element as the element rotates slowly through the incoming air field. (Def. Ex. 312; McKee N.T. 251).

 17. Defendant Air Preheater acquired the U.S. patent rights for this Ljungstrom air preheater, but those basic patents expired several decades ago. (N.T. 4-5).

 18. Over the years the regenerative type air preheater has increasingly replaced the recuperative type air preheater in customer preference to the point where the regenerative type now accounts for around 90% of the preheater business. This is apparently the result of a greater efficiency of the regenerative type. This greater efficiency results in a greater saving of fuel over the life of the boiler. (McKee N.T. 225-228).

 19. Air Preheater is still the only company in the U.S. making and selling the Ljungstrom regenerative-type air preheater. Other substantial companies with extensive experience in the boiler business, including Babcock & Wilcox and Foster Wheeler, have tried to market regenerative-type air preheaters, but Air Preheater nevertheless sells around 90% of all the regenerative-type air preheaters sold in the U.S. (McKee N.T. 237-238).

 20. Plaintiffs have specifically disclaimed having any evidence that the commanding position of Air Preheater in the air preheater market was unlawfully achieved. (N.T. 4).

 21. The focal point of these consolidated lawsuits is competition in the sale of replacement element for use in Ljungstrom air preheaters. The heating element of a preheater has to be replaced after some years of operation. The service life of the element depends on a variety of factors. Among these are the design and workmanship of the units, the degree of corrosiveness of the fuel being used in the boiler, and the durability of the material used in the element. (Stip. PP 10, 11).

 22. Replacement element is essentially steel sheet corrugated to certain configurations and cut to fit into the many pie-shaped frames (called "baskets") which are contained in the rotor part of the Ljungstrom air preheater. (Wheeler N.T. 154-156; Def. Ex. 312, pp. 10-13).

 23. Given the configuration of the corrugation of the steel and the dimensions of the elements in the original air preheater, any skillful metal fabricator can manufacture replacement element. (Wheeler N.T. 168).

 24. Moreover, the capital investment required to manufacture replacement element is not large. (Wheeler N.T. 168-169).

 25. On the average, the heating element represents about 60% of the total weight of a Ljungstrom and somewhat less than 50% of the cost of manufacture. (Jamieson N.T. 37).

 The Relevant Markets.

 26. The two largest fossil-fueled boiler manufacturers are defendant Combustion Engineering and Babcock & Wilcox, with Foster Wheeler and Riley Stoker the next in size. Each of these purchases Ljungstrom air preheaters for installation with various boilers sold by it (Stip. P 12).

 27. The principal purchasers of boilers equipped with a Ljungstrom air preheater are the utilities, but large industrial concerns which operate their own power plants (which are typically smaller than the power plants of utilities) also sometimes purchase boilers equipped with a Ljungstrom air preheater. From time to time these boiler users purchase replacement elements. (Stip. P 13).

 28. In the first 10 months of 1971, the four major boiler manufacturing companies had the following percentages of the boiler business booked: Combustion had 39%, B & W had 37.4%, Foster Wheeler had 13.2% and Riley Stoker had 10.4%. (Pl. Ex. 174).

 29. In recent years, Air Preheater's Ljungstrom has had about 90% of the preheater business in the utility market. The tubular heater, the lamiflow, and the Rothemuhle have the remaining 10%. The utilities use about 95% of these preheaters with the remainder used in large industrial boilers. (Pl. Ex. 162, McKee N.T. 237-38, Jamieson N.T. 35-36).

 30. There is a nationwide market, which also includes Puerto Rico, for the Ljungstrom air heater and its replacement elements. (E.g. Pl. Exs. 231, 21, 28).

 31. There is no factual basis for plaintiffs' claim that original element and replacement element constitute a single product market. The relevant product market to be used in testing the plaintiffs' claim in this lawsuit is replacement element for use in Ljungstrom air preheaters.

 Description of the Parties and their Personnel.

 32. Defendant Combustion Engineering in 1971 had assets of approximately $721,500,000 and sales of approximately $1,066,000,000. It has 7 divisions, among them its Combustion Division which fabricates nuclear and conventional steam equipment and marine boilers. Defendant Air Preheater is a wholly-owned subsidiary of Combustion, and it is primarily in the business of manufacturing and selling Ljungstrom air preheaters and associated equipment. (Stip. P 14).

 33. Max Wheeler was a skilled machinist who had started his own machine shop in 1954. He had had no prior experience with either air preheaters or replacement element when he organized PRI in 1963 and entered the replacement element business with a capital investment of $35,000. (Wheeler N.T. 168-169).

 34. Plaintiff PRI in 1963 started to manufacture and sell replacement element in competition with Air Preheater from a plant in Costa Mesa, California, near Los Angeles. Plaintiff PRC was started in 1966. It manufactures and sells replacement elements in competition with Air Preheater from a plant in Montgomeryville, Pennsylvania. Max Wheeler is the president and chief stockholder of both companies. He works out of Costa Mesa. James D. Jamieson, an ex-employee of Air Preheater, heads up the Montgomeryville operation. (Stip. P 15).

 35. The Air Preheater executive who from before 1963 to date has had the most immediate responsibility for Air Preheater sales of replacement elements is John E. Baker, Manager of Air Preheater's Maintenance Sales Department. He has held that job since 1952. As of 1/1/64, Baker reported to E. G. Devine, Manager of Marketing, who in turn reported to T. R. Halstead, Vice President of Sales, who reported to J. L. Kelehan, President of Air Preheater. Also reporting to Halstead was B. S. Kelley, who was then General Sales Manager in charge of field sales. Effective September 1965 Baker began to report to General Sales Manager Kelley, who in turn reported to J. W. Garrick, Director of Sales (later named Vice President of Sales), who had replaced Halstead. Garrick in turn reported to W. R. McKee, President, who had replaced Kelehan. Beginning January 1969, Baker began to report to I. R. Eldridge, in charge of staff functions (later Manager of Marketing), who in turn reported to Kelley (General Sales Manager and then Vice President of Sales) who had replaced Garrick. Kelley reported to McKee. In August 1970 T. L. Woolard replaced McKee as President of Air Preheater, and McKee moved up to Combustion Engineering. In that position 5 subsidiaries, including Air Preheater, report to him. (Stip. P 16).

 36. Halstead left Air Preheater on December 13, 1964. He was employed by Power Replacements on March 29, 1965, as their sales manager and mid-west representative and remained with Power Replacements about 11 months. (Stip. P 17).

 Development of Competition Between Plaintiffs and Defendants.

 37. In 1963, Air Preheater had a complete monopoly of the replacement element business, and enjoyed very high profits. It was making around 60% gross profit *fn1" on hot and intermediate element and around 50% on cold. (Pl. Ex. 67). The gross profit on all its spare parts business was around 51%. (Pl. Ex. 65). The high profitability of this business created conditions for competitive entry, particularly on the West Coast where the freight charged by Air Preheater for shipment from its plant in Wellsville, New York, added close to an extra 10% to the price that the customer had to pay. (Pl. Ex. 67). And the spare parts business was a rapidly growing one. (Pl. Ex. 17, McKee Dep. 34-22 to 36-8).

 38. Thus on May 17, 1963, Devine, Manager of Marketing, in commissioning a review of spare part pricing wrote:


"There are a number of factors that are involved. Of particular interest is recent correspondence from the West Coast reporting on independent shops pirating our spare parts seal replacements. This happens to be one of the items that carries fairly high profit margin." (Pl. Ex. 64).

 39. Some customers, among them Southern California Edison, West Penn Power, and American Electric Power, criticized Air Preheater for the prices it was charging. (Pl. Exs. 3, 65, 66). But Air Preheater continued as the only manufacturer, and everybody who needed replacement element had to pay Air Preheater's list price plus freight from Wellsville to the customer's plant.

 40. In late 1963, Southern California Edison, the biggest user of heating element on the West Coast, began to look for an alternate source of supply of replacement elements. It turned to Max Wheeler, who operated Clark & Wheeler Engineering, a custom machining operation. Wheeler went into the replacement element business, using initially the facilities of Clark & Wheeler. Shortly after this operation got on stream, plaintiff Power Replacements, Inc. was set up separately for this purpose. (Pl. Ex. 21, 11/68; Pl. Ex. 151; Wheeler N.T. 154-56).

 41. In reporting on the activities of Power Replacements to headquarters in Wellsville, Brow, the Air Preheater regional sales manager in Los Angeles, whose sales were most immediately affected by Power Replacements competition, reported as follows:


"Mr. Wheeler has recently formed a new company, to be known as Power Replacements, Inc. He is confident that he will be doing much business with utilities in the areas of Arizona, Nevada, and California in supplying spare parts for major plant items. For example; air heater surfaces, boiler burner parts, pulverizing castings, and many other items. His general attitude is that the utilities are free to buy spare parts wherever they please, and that the original manufacturers have had this lucrative business to themselves for many years at the expense of the customers."

 Brow also noted that Combustion itself had already felt directly the results of Wheeler's efforts in making burner box castings for Combustion tangential burners, which orders had previously gone to Combustion, and Brow reported that he had discussed this with Combustion. (Pl. Ex. 24). There were also internal discussions in Air Preheater around 1963 to the effect that Wheeler's competition would hurt boiler manufacturers, especially Combustion, on boiler parts. (Baker Dep. 37-13 to 39-6).

 42. With Power Replacement's entry, Air Preheater began to give immediate attention to pricing strategy. For example, on December 13, 1963, Devine wrote:


"In addition to correspondence we have had conversations concerning pricing of maintenance sales items. This is an item that bears regular review. However, the need for a review at this time has a certain urgency attached to it due to reports from our Los Angeles Office of competition for both heating element and seal." (Pl. Ex. 3).

 43. On January 17, 1964, Baker completed a thorough study of Air Preheater's pricing structure on various maintenance sales items. (Pl. Ex. 67, Baker Dep. 39-11 to 39-17). And the pros and cons of various pricing policies, including freight allowance, were debated in this period. (Pl. Exs. 67, 4, 5, 6, 7, 8).

 44. On February 20, 1964, Baker wrote:


"I have been constantly thinking about ways and means that we can beat our friend, Max Wheeler, on the West Coast, and prevent him from spreading his operations throughout the country." (Pl. Ex. 68).

 Then after discussing the possibility of buying out Power Replacements, Baker wrote in the same document:


"If Wheeler is not willing to sell or if we do not desire to approach him on this basis, I still think we can beat him on replacement element orders. It is my suggestion along these lines that on the next heating element inquiry received from the West, that we reduce the price by ten percent and in addition, allow freight. We would still realize what we might term a fairly good margin of profit, and perhaps take the order away from Wheeler. If this did not work what can't. (sic) we go even further and bid fifteen percent or perhaps twenty percent under our present list, which might be just what is required to take the order from Wheeler . . . I believe that we are a big enough operation so that we could beat this competition and whatever other competition might develop in other areas." (Pl. Ex. 68).

 45. And on May 28, 1964, upon seeing a Power Replacements advertisement in the magazine Power Engineering, Baker wrote:


"Apparently, Clark & Wheeler is trying to spread his operations, and I feel this is all the more reason we should take whatever action we feel necessary to under bid him on every job we can." (Pl. Ex. 9).

 46. The desire to stop Power Replacements continued. For example, on August 28, 1964, Devine put into his file a manuscript note that Hammond, Manager of Manufacturing and a member of the management committee, had asked him to get certain information on Max Wheeler:


" (a) Relative price levels


(b) APX sales be (sic) geographical areas and product


(c) ideas I (?) had about how to stop him


(d) What we knew of Max's plans about penetrating the market


(e) This was stuff he wanted available because he wanted to take to Godelius about licensing them to fabricate for us in Japan and sell it in Western states -- to cut prices & stop Max 'cold'" (Pl. Ex. 10).

 47. During the first half of 1964, Baker was fearful of losing a considerable amount of business and this resulted in his bidding some jobs under list and giving freight allowances. (Baker Dep. 59-6 to 59-24).

 48. In the early stages of the competition, Air Preheater decided to allow freight on a selective basis in instances where Power Replacements was bidding against Air Preheater. In addition, Air Preheater gave price concessions in a number of instances on top of the freight allowance as a way of competing against Power Replacements. (Baker Dep. 43-11 to 44-18, Halstead Dep. 70-4 to 70-20, Pl. Ex. 281). This price cutting was on a trial and error basis to establish what price Air Preheater would have to quote to get business. (Halstead Dep. 76-18 to 78-5).

 49. In April 1965 PRI commenced a lawsuit in California against Air Preheater and Combustion Engineering, in which PRI charged that the defendants had violated the Sherman Act and the Robinson-Patman Act by, among other alleged activities, selectively cutting prices when bidding against PRI; selling below cost in competing against PRI; determining the prices bid by PRI on particular jobs before submitting their own bids on those same jobs; and disparaging PRI's product. (Stip. P 16-25).

 50. At an early stage in that litigation, before defendants had filed their answers, the case was settled by a payment of $32,500.00 to PRI and its attorneys and mutual undertakings by PRI on the one hand and Air Preheater on the other to forego any illegal competitive activities. There was no testimony taken in that lawsuit and no determination on the factual accuracy of PRI's charges. Mutual releases were executed under date of August 2, 1965. (Def. Ex. 3, N.T. 8). *fn2" As a result of this earlier litigation, plaintiffs are not claiming damages for any causes of action accruing prior to August 4, 1965. They have offered evidence of events prior to that date, however, to attempt to establish liability for certain later events. (Stip. P 20).

 51. As a result of the 1965 lawsuit Air Preheater consulted legal counsel and was advised that the following ground rules should be followed in competing against PRI:


(i) Air Preheater should never sell below cost;


(ii) Air Preheater should not attempt prior to submitting its own quotation to learn what PRI was actually quoting on that particular job;


(iii) When it believed it was quoting in competition with PRI Air Preheater could quote "off-book", but it should endeavor to quote higher than the bid it anticipated PRI would make; and


(iv) Air Preheater was not to malign PRI's product.

 The Air Preheater management arranged for seminars where these competitive ground rules were explained to Air Preheater's head office and field personnel. (McKee N.T. 214-216, Baker N.T. 262-263).

 The question as to whether this advice of legal counsel was followed is a vital area of dispute. See Findings of Fact Nos. 82 to 96.

 52. PRC started competing with Air Preheater in the sale of replacement element in the spring of 1966. Since that time PRI and PRC have never bid competitively against each other and on some jobs their respective officers have conferred as to which of the two companies should bid for the job. (Jamieson N.T. 97, Wheeler N.T. 173-174).

 53. PRI, the California plaintiff, generally serves a market territory covering the states of California, Arizona, Oregon, Washington, Idaho, Montana, Wyoming, Nevada, Utah, Colorado, New Mexico, Texas and Oklahoma and Hawaii. PRC, the Pennsylvania plaintiff, generally serves a market territory comprising the rest of the country and Puerto Rico. (Wheeler N.T. 172-174, 176-179).

 54. The replacement element business in the PRI territory is concentrated in the area of Southern California and Arizona. In the Northwest electricity is largely generated by hydro-electric facilities and air preheaters are not used in this type of facility. In parts of the Southwest -- particularly Texas and Oklahoma -- natural gas is a commonly-used boiler fuel, and air preheater elements seldom have to be replaced when the boiler fuel is natural gas. (Wheeler N.T. 176-179).

 Defendants' Maintenance of Profit-Maximizing Monopolistic Market Share.

 55. Throughout the history of competition between Air Preheater and Power Replacements, Air Preheater has paid considerable attention to the way business is split between Power Replacements and Air Preheater. Baker has maintained a detailed bidding summary (Pl. Ex. 29) showing the results of jobs where he believed Air Preheater was in competition with Power Replacements. (Baker Dep. 17-17 to 19-4, 20-11 to 21-16). In addition, early in 1965, a monthly report was started and has been maintained to date, prepared by Baker for his superiors, commenting in detail on individual jobs when Air Preheater faced Power Replacements competition (Baker Dep. 13-16 to 13-20, 17-10 to 17-16, Garrick Dep. 24-6 to 25-5), developments in the market, how much of the market Air Preheater has obtained, and reporting on how Air Preheater is doing in competition with Power Replacements. (Pl. Ex. 21).

 56. In June 1965, Baker, the person acknowledged to be most knowledgeable about Power Replacements in the Air Preheater organization (Kelley Dep. 87-18 to 88-15), came up with a forecast in which he formulated an "educated guess" as to the share of the replacement element business Power Replacements would get in the future. He predicted that Power Replacements would obtain 25% of the business in 1965, and 30% in 1966. In predicting that Power Replacements would obtain 35% in 1967, Baker wrote:


"They might obtain more of this business but with our stepped up selling campaign we should be able to hold them to not more than 35%."

 He then stated that for 1968, "I think we should use same forecast as for 1967". (Pl. Ex. 15).

 57. In coming up with Pl. Ex. 15, Baker formed his conclusions as to Power Replacements' likely market penetration by taking into account that "they were well established, were producing a quality product," and were "an acceptable bidder at a lower price." (Baker Dep. 79-17 to 79-24.) It was Baker's impression that had it not been for Air Preheater's "stepped up selling campaign" referred to in Pl. Ex. 15 (See Finding of Fact No. 56), Power Replacements would have achieved at least 50% of the market in replacement element. (Baker Dep. 80-5 to 80-17).

 58. In January 1966, Garrick, Air Preheater's Vice President of Sales, in reporting to McKee, President of the company, noted the assumption that Power Replacements had obtained about 25% of the available business for 1965 and added:


"Approximately three months ago, our figures indicated that Power Replacements had obtained about 34% of the total available business; so the trend as far as we are concerned is in the proper direction." (Pl. Ex. 53).

 And in June 1966, Garrick wrote to McKee:


"We continue to receive reports from the field that the quality of Power Replacements' product has definitely improved and that it is, most of the time, very acceptable. In addition, they have been delivering element in four days from receipt of order." (Pl. Ex. 55).

 59. On September 22, 1966, Baker prepared a "Forecast of Maintenance Sales" which predicted Air Preheater's share of the replacement element market for the years 1966 to 1970. He predicted that this share would remain at a constant 75% of an increasing level of available business. (Pl. Ex. 16).

  60. In light of Power Replacements' acknowledged success as an acceptable bidder which would have achieved at least 50% of the market absent a concerted effort on the part of Air Preheater to prevent this increased penetration (see Findings of Fact Nos. 56 to 58), we find that Pl. Ex. 16 demonstrates a clear intent on the part of Air Preheater to limit Power Replacements to 25% of the market over a five year period.

  This conclusion is supported by Findings of Fact Nos. 61 to 63 which describe why Air Preheater wished to maintain this particular division of the market, and by Nos. 64 to 81 which describe how this percentage was successfully maintained.

  61. Air Preheater was able to maximize its profits at about 75% penetration of the market. To obtain a greater percentage, Air Preheater would have had to lower its prices to "unattractive" levels which would have lowered its return in the overall picture. (Pl. Ex. 73). For example, on December 9, 1968, Baker wrote to Garrick and Kelley:


"We are now obtaining approx. 75% of the market which is better (profitwise), than 100% of the market which would be obtainable only by reducing current element prices." (Pl. Ex. 227).

  Baker testified that it was his recommendation "that we maintain a lesser share than 100% at a better pricing level so that we would have more profit generation." (Baker Dep. 87-2 to 87-4; see also 87-25 to 89-7, Garrick Dep. 44-10 to 45-19).

  62. The pricing study prepared by Baker on December 9, 1968, demonstrated, inter alia, that:

  a. It would take Air Preheater quotes at 30% off book on hot and intermediate end element and 20% on cold to obtain 100% of the market, thereby eliminating the competition of Power Replacements.

   b. Air Preheater was making about $500,000 more gross profit per year by making "competitive quotes" of about 15% off book on hot and intermediate and 10% on cold and keeping 75% of the replacement element business than if it obtained 100% of the market thereby eliminating the competition of Power Replacements. (Pl. Ex. 227, Baker, N.T. 316-317).

  63. In addition to this profit maximization motive, Air Preheater did not wish to cut prices too much on open bids because this would expose its prices so that they would be learned by the other purchasers. They also did not wish to create too wide a disparity in prices offered to private utilities because such utilities tend to exchange information with each other and there would be complaints from the disfavored customers. (Baker Dep. 89-20 to 90-4). More importantly, Air Preheater was afraid that if some of the larger customers saw the price differential between Air Preheater's prices for spare parts and those being quoted by Power Replacements, they would soon begin to question the price of the entire original preheater. (Pl. Exs. 46, 45).

  64. Air Preheater's forecast of 75% of the market was not just a prediction, but the percentage it set for itself as a goal. (Garrick Dep. 30-7 to 31-18; Baker Dep. 83-9 to 83-14, 84-2 to 84-19; Kelley Dep. 90-18 to 91-12). We find that Air Preheater did its best to achieve and maintain 75% of the market, rather than to obtain as much of the replacement element business as they lawfully could, as defendants would have us believe. (See Defendants' Proposed Findings of Fact No. 81).

  65. Between June 1965 and September 1966, Garrick discussed with Baker the limiting of Power Replacements' market penetration, and the conclusion was that Air Preheater would be more competitive in bidding. (Garrick Dep. 31-19 to 34-13).

  66. Garrick discussed with Baker in 1967, 1968 and 1969 holding Power Replacements to 25% of the market. (Garrick Dep. 42-23 to 44-7).

  67. In discussions Baker had with Garrick it was recognized that customers were becoming increasingly price conscious, that Power Replacements was making a quality product, that Power Replacements was becoming an acceptable bidder with more and more customers, and that price concessions had to be made to more people. (Baker Dep. 106-3 to 106-21).

  68. On February 13, 1967, Garrick reported to McKee:


"Our final figures indicate that Power Replacements obtained an estimated total of $950,000 for heating element representing 28.75% of the total available business. Our heating element bookings amounted to $2,352,000 or 71.25% of the total. About April of last year Power Replacements' effectiveness stood at 44% and we managed to reduce this as the year progressed to the 28.75% stated above." (Pl. Ex. 156).

  69. Garrick reported to McKee in May 1968:


"The value of orders received during the month amounted to approximately $232,000 and for the year to date $1,228,000. Again, based on our pricing, Power Replacements are maintaining approximately 27% as their share of the total available element business. Maintenance Sales was the subject of some discussion at the recent Sales Meeting and the proper emphasis was placed upon this phase of the business. Further plans are being developed to keep Power Replacements' penetration to an absolute minimum." (Pl. Ex. 52).

  This was the same month that Baker noted that "Power Replacements has become an acceptable bidder to particularly (sic-practically?) all our customers." (Pl. Ex. 80).

  70. On July 11, 1968, Garrick reported to McKee:


"The value of orders received during the month amounted to approximately $138,000 and for the year to date $1,900.000. Power Replacements continues to capture a good proportion of the business. Up to the end of June we have booked about 67% of the total available business and Power Replacements has booked the remainder. There is no doubt that Power Replacements is being accepted by a wider group of utilities and it is becoming firmly entrenched." (Pl. Ex. 160).

  71. A concerted sales campaign was precipitated in September 1968 by a concern that Air Preheater would not meet its forecasted percentage of the maintenance sales business including the replacement elements business. (Kelley Dep. 89-8 to 89-24, 90-18 to 91-12, 98-3 to 100-10; McKee N.T. 220).

  72. On September 11, 1968, Garrick reported to McKee:


"The value of orders received during the period amounted to approximately $150,000 and for the year to date $2,136,000. Up to the end of August it appears that we have booked about 65% of the available business and Power Replacements the remaining 35%. As previously mentioned, there is no doubt that Power Replacements are receiving wider acceptance and this is reflected in the above figures.


The four million dollar figure forecasted is still achievable but only if we give it significantly more attention at the sacrifice of some other products. As discussed with you, we have implemented a campaign to stimulate and increase the sale of maintenance items and we expect to see positive results from it in the last quarter of this year." (Pl. Ex. 161).

  73. In addition to getting people out to sell, Air Preheater came in with competitive bids where Baker thought he had to make a competitive bid, and in doing so there was a greater emphasis on larger jobs than on the smaller ones. (Baker Dep. 107-3 to 109-4).

  74. Air Preheater went after big jobs and, with price-conscious customers, of which there was a substantial number, this meant price concessions. Lower prices were quoted especially on such large jobs. (Garrick Dep. 36-25 to 38-18, 39-24 to 40-20; Kelley Dep. 79-2 to 83-9).

  75. On August 11, 1969, Kelley reported to McKee:


"During July we noted that Power Replacements booked approximately 30 percent of the element business that we know of, making this period average out a little higher than their normal one-quarter of the business." (Pl. Ex. 164).

  76. In October 1969, Baker reported to Kelley that, to date, Air Preheater had obtained 69% of the business and Power Replacements had obtained 31%, noted that this was about the same percentage that had prevailed most of the year and added:


"I would like to see their share brought back to not more than 25 percent, if possible, by year end." (Pl. Ex. 23).

  77. On March 10, 1970, Kelley reported to McKee:


"The Power Replacements/Air Preheater split of the business shows that we have booked 75 1/2 percent of the known available business so far this year. While February was a very large month for us, it was also a good month for Power Replacements; and we showed only a slight increase in our percentage of business over them."


"I do not foresee the level of bookings to continue this year and therefore feel that we should continue our concerted sales campaign on elements throughout the country." (Pl. Ex. 167).

  78. On February 3, 1971, Kelley reported to McKee's successor Woolard:


"For the first time that anyone can recollect, Power Replacements actually received more orders than we did during the month for heating element. Our bookings ran to $146,000 while theirs amounted to $292,000, which is in the ratio of 34/66 in their favor. This imbalance, as we have known it, consisted principally of three very large jobs for Southern California Edison, T.V.A., and Consolidated Edison. I would not think that this is typical of the long haul by any manner of means, but it is disturbing even for a one-month period." (Pl. Ex. 173).

  79. And when Air Preheater learned of the possibility that Power Replacements might sell original element to Babcock & Wilcox, Kelley reported to Woolard:


"The fact that B. & W. will utilize Power Replacements elements in their new vertically oriented Ljungstrom-type preheaters may ultimately give some sort of tacet (sic) blessing to Power Replacements elements. However, it is our intention to do a significant amount of campaigning against such an eventuality beginning as of now." (Pl. Ex. 173).

   80. The following tabulation (drawn from Baker's records here identified as Pl. Ex. 50 and Pl. Ex. 21) shows how successful Air Preheater has been in limiting Power Replacements to a predetermined share of the element business Known to Air Preheater : n3 Year Available Business APCO P.R. 1964 $ 2,982,736 $2,578,477 (86.4%) $ 404,259 (13.6%) 1965 3,029,572 2,257,933 (74.5%) 771,739 (25.5%) 1966 3,300,961 2,351,453 (71.25%) 949,508 (28.75%) 1967 3,689,840 2,759,918 (74.8%) 929,922 (25.2%) 1968 3,757,655 2,434,351 (65.0%) 1,323,305 (35.0%) 1969 3,587,781 2,587,780 (72.2%) 1,000,004 (27.8%) 1970 5,688,596 4,399,069 (77.0%) 1,289,527 (23.0%) 1971 5,935,050 4,419,030 (74.5%) n4 1,130,995 (20.0%)


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