(CN) – The 3rd Circuit found no antitrust violations by a tire vendor that owned a 94 percent market share of the dirt oval track tire industry.
Specialty Tires of America Inc. said Hoosier Racing Tire Corp. violated antitrust laws by coercing various race sanctioning bodies into contracts.
Specialty sells tires for aircraft, farming equipment and racing cars. The company’s house brand tire is known as “American Racer,” which is designed for on- and off-road racing.
Specialty also sued Dirt Motor Sports, which organizes, promotes and judges over 5,000 races per year. Sanctioning companies regularly set rules for what types and sizes of tires can be used in races.
Specialty claims that the adoption of “single tire rules” by various race sanctioning bodies, including Dirt Motor Sports, led to Hoosier’s alleged monopoly.
Single tire rules were originally established to “avoid the almost constant pace of tire exchanges… and [make] race results… more related to a driver’s skill and ability and not a more expensive ‘state-of-the-art’ tire,” according to Specialty.
However, the company claims that “abuse [of the single tire rule] has resulted in the concentration of market power in the hands of a single monopolistic tire supplier.”
Tire sponsors are expected to contribute to “point funds” which are used as prizes for drivers. Companies that sanction races balance the cost per tire with the sponsor’s contribution to determine what brand will be used.
Specialty alleges that a form contract which Hoosier began using in 1997 gives the company an unfair grip on the industry. The contract automatically renews unless written notice that the sanctioner wishes to terminate is given. In the event of termination, Hoosier can pull some of its contribution, discouraging sanctioners from changing sponsors.
The district court ruled that that no antitrust violation is present “where, as here, a sanctioning body freely decides to adopt a single tire rule and then freely selects a supplier.”
The 7th Circuit affirmed the decision, finding Hoosier did not use coercive tactics and that contracts were awarded based on competitive justifications.
Circuit Judge Robert Cowen determined that Hoosier’s actions were smart business practices, not antitrust violations.
“When the consumers favor a product or practice, and only rivals squawk, the most natural inference is that the complained-of practice promotes rather than undermines competition, for what helps consumers often harms other producers such as [the plaintiff],” Cowen quoted from the 7th Circuit ruling.
“Sports-related bodies should be given leeway with respect to their adoption of equipment requirements as well as their related decision to enter exclusive contracts with the respective suppliers.”
This is the second federal antitrust suit brought against Hoosier because of a single tire rule. The 1st Circuit previously rejected another suit.