MUSCATINE, Iowa—Bandag Inc. has sued Michelin North America Inc. and its Michelin Retread Technologies Inc. subsidiary (MRTI), accusing the companies of employing illegal tactics in an attempt to destroy Bandag's business and eliminate it as a competitor in the U.S. retread tire market. The suit asks the court to enjoin Michelin from soliciting additional Bandag franchisees and is seeking unspecified damages to compensate for the loss of business, which amounts to at least 10 percent of Bandag's U.S. sales.
``We believe Michelin's goal is to control the truck tire retread market and then shift the product mix from retreads to costlier new replacement tires,'' Bandag CEO Martin G. Carver said in a press release.
Michelin has denied Bandag's allegations. In a Sept. 21 press release, John Rice, COO of Michelin Americas Truck Tires, said, ``The lawsuit Bandag has initiated against Michelin is without merit, and we plan to take an aggressive stance against all claims.
``It's clear Bandag is concerned about competition from MRTI in the market and is now inappropriately attempting to use litigation to try to prevent Michelin from continuing our entry into the retreading industry.''
In its suit, filed Sept. 16 in the U.S. District Court for the Southern District of Iowa, Davenport Division, Bandag alleges Michelin in 1997 began a concerted effort ``to injure and cripple Bandag, usurp Bandag's dealer network, and eliminate Bandag as a competitor.''
The suit identifies six basic methods Michelin allegedly has used in its attack on Bandag:
Raiding Bandag's distribution network of approximately 410 franchised locations by persuading Bandag franchisees to switch to Michelin's retreading process, including inducing them to breach their franchise agreements with Bandag.
Improperly coercing Bandag franchisees not to renew their franchises.
Tying the sale and/or availability of Michelin new tires to the sale of Michelin retreads and leveraging its market power—an estimated 20-percent share of the U.S. market for new commercial truck tires—to force dealers to convert to Michelin retread tires.
Pricing products below cost and in a predatory manner at major trucking fleet accounts and to dealers.
Making false and derogatory statements concerning Bandag—that Bandag is going out of business or will be bought out—as well as false, unsubstantiated claims that Michelin retreads are superior to Bandag retreads.
Misappropriating Bandag's confidential, proprietary and trade secret information.
The suit alleges that Michelin has exerted tremendous economic pressure—both positive inducement and negative coercion, or ``carrot'' and ``stick''—to force Bandag franchisees to convert from Bandag's retread process to Michelin's.
In the ``carrot'' category, according to the suit, ``Michelin has offered substantial financial inducements, worth millions of dollars, which, in some cases, are amounts substantially in excess of any profit levels that Michelin could reasonably anticipate from these businesses.''
These inducements have included offers to build retread manufacturing facilities free of charge if the Bandag franchisees would convert to Michelin, the suit charges.
Michelin also is offering Bandag franchisees increased commissions for new tires, more money for retreading and more money to dealers for service work if they convert to MRTI, the suit alleges.
On the other hand, the one carrying the ``stick,'' Michelin has made express or implied threats that it would discontinue selling new tires to Bandag dealers who elected not to switch to MRTI, the suit alleges.
``Michelin has threatened Bandag franchisees who refused to convert to Michelin with: reduced availability of supply of Michelin new truck tires, withholding promotional and marketing funds, and termination of their Michelin new truck tire dealerships,'' the suit contends.
As an example of this activity, the suit cites Michelin's decision to terminate the dealer agreements with the five large commercial dealerships Bandag acquired in the fall of 1997 to create its Tire Distribution Systems Inc. subsidiary.
According to the suit, Michelin told one Bandag franchisee he didn't have a choice whether to convert or not; if he did not, Michelin would put him out of business.
``In short, Michelin has put the word out to tire dealers that `you can sell Michelin tires or Bandag retreads, but not both,''' the suit states.
Michelin has persuaded ``numerous'' Bandag franchisees to convert to Michelin, the suit charges, and is engaged in negotiations with many more. Seven Bandag-to-Michelin converts are mentioned by name in the suit, which says they had accounted for about 10 percent of Bandag's tread rubber sales to dealers in the U.S.
The seven dealerships are: Bauer Built Inc., Durand, Wis.; Brahler's Trucker's Supply Inc., Jacksonville, Ill.; Consolidated Tires Inc., Greenville, S.C.; Jack's Tire and Oil Inc., Salt Lake City; Stringer Tire Co., Jacksonville, Fla.; Ziegler Tire and Oil Co., Canton, Ohio; and Tire Centers Inc., Akron.
Michelin acquired TCI earlier this year.
To be a meaningful competitor in the U.S. commercial tire market, a company has to offer nationwide coverage, the suit states.
``If Michelin is successful in its attempt to convert key Bandag franchisees, Bandag will not be able to provide coast-to-coast coverage, and the Bandag distribution system in the United States will be crippled and destroyed,'' it says.
The suit also takes issue with Michelin advertising that claims all tires that go through the Michelin retread process are inspected with X-rays and shearography machines.
``These representations are false,'' the suit alleges. ``...(O)nly a small fraction of tires retreaded by the Michelin process undergo both of these testing techniques.''
The suit also accuses Michelin of offering a pricing scheme to a number of national fleet accounts that is ``predatory in character,'' under which Michelin takes a loss in the short term with a goal of reducing the number of fleets using retreads.
According to the suit, Michelin has offered to buy all of a fleet's casings at $100 per tire and then sell the fleet new replacement tires. The $100 casing price is approximately $35 above the going market price, the suit states, with the result that Michelin will take a loss on the transaction.
``By offering a predatory price for casings, however, Michelin can sell these accounts exclusively replacement tires and thereby eliminate competition from Bandag at these key national fleet accounts,'' the suit says.
The suit lists nine separate causes of action, including violations of the federal Sherman Act and Robinson-Patman Act and South Carolina's Unfair Trade Practices Act (Michelin's U.S. headquarters are in Greenville, S.C.).
It seeks injunctive relief for Bandag, as well as unspecified compensatory and punitive damages, including treble damages for violations of the aforementioned acts.
Michelin's Mr. Rice characterized the lawsuit as ``Bandag's latest attempt to preserve a monopoly position in retreading,'' where Bandag has more than 50 percent of the market. He contrasted Bandag's network of more than 400 franchise locations with MRTI's 28 locations.
``Dealers deserve a chance to choose what processes and products they offer the end user,'' Mr. Rice said. ``...and we're going to provide the support needed to afford them that option.''
He accused Bandag of resorting to the legal process to avoid the realities of the marketplace, where he said Bandag is having a difficult time competing with MRTI.