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Foam Supplies sues Dow Chemical

By David Reed, UT EditorHouston, Texas-Foam Supplies, Inc., one of North America’s few remaining independent systems houses, is suing the Dow Chemical Co., alleging that the raw materials major delayed shipments of its products, reduced the amounts of many shipments below contractual amounts, and increased prices more frequently than it imposed such rises on its own customers and its own systems house business.In addition, FSI alleges, Dow told its own customers in late-2004 not to buy chemicals such as MDI (methylene diphenyl diisocyanate) from systems houses like Foam Supplies because they would be the last to be supplied when stocks were low.Finally, FSI says, Dow has used proprietary technology developed by FSI, after meetings in which the systems supplier shared its trade secrets with the raw materials major.Pat Dawson, business vice president with Dow’s polyurethanes and thermosets business, said that, “to the best of my knowledge, we have not been officially served with any such suit and so cannot respond to the various allegations. But, we will comprehensively and thoroughly defend the situation,” he said, speaking in an 18 Oct. interview at the Polyurethanes 2005 conference and trade fair in Houston.The situation began to develop last year, when Dow made several public announcements of price increases for MDI and polyether polyols; FSI says it was faced with demands for increased prices for MDI seven times during the year, along with four polyol price-rise demands.Then, on 10 Aug., Dow representatives told FSI that certain market factors authorised Dow to increase prices and to restrict sales volumes to 1/12th of their usual level. Less than a week later, 16 Aug., FSI reaffirmed its contract with Dow, agreeing to purchase 10 million pounds (about 4535 tonnes) of MDI and 2 million pounds (910 tonnes) of polyols in both 2004 and 2005.But FSI alleges that, in early September 2004, it became aware that Dow was delaying shipments of MDI that it had ordered; Dow initially said this was due to weather conditions in the southeastern United States, where its main plants are located. But, on 17 Nov., FSI says, Dow wrote to say that equipment failure at an MDI plant in Texas would limit availability of the material, so Dow could not supply FSI with the MDI it had ordered.FSI says this situation obtained in the last four months of 2004, during which “Dow repeatedly breached its obligations under the contract, by failing to supply MDI and polyols that FSI had ordered.”But FSI’s main complaint is that, while faced with these various difficulties, “Dow was actively seeking new customers for MDI and polyols produced by Dow (including customers of FSI).”Not only that but, FSI claims “Dow representatives told potential customers in late-2004 that, if they purchased directly from Dow, they would not be affected by the on-going product shortages.” FSI also claims that Dow told customers that they “should not purchase chemicals like MDI from systems houses like FSI … [because they] … would be the last to be supplied with product by Dow when stocks were low.”Bluntly, “Dow has used the artificially exaggerated shortages of MDI to steal customers and sales volume from FSI” and, as a result, “FSI suffered cognisable antitrust injury,” the suit alleges.In a separate interview in Houston, David Keske, a senior manager with FSI, emphasised that his firm had been a Dow customer for over 18 years, and we never cancelled a delivery, and always paid our bills on time.”And the only response from Dow, so far, was to stop supplying the firm altogether, as of last Thursday [13 Oct.], Keske said.”

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