Sawmills in Pacific Northwest Sue to Break Weyerhaeuser's Hold on Hardwood

Wanted: alder sawlogs. Will pay competitive prices. Call Westwood Lumber Co. If procuring alder logs to feed his Reedsport sawmill were as easy as placing a classified ad, Westwood Lumber president Grant Wheeler would have done so years ago. But with Weyerhaeuser Co. scooping up roughly two-thirds of the alder in Washington and Oregon to supply its own hardwood mills, Wheeler and other independent alder mill owners are left to scramble for the increasingly expensive scraps. So, after enduring years of shortages, Westwood and three other Northwest mills late last month filed a federal antitrust lawsuit against Weyerhaeuser Co., asking the U.S. District Court in Portland to force the timber giant to loosen its dominant grip on the alder market in Oregon and Washington. The lawsuit contends that Weyerhaeuser, through illegal and monopolistic practices, controls more than 60 percent of the alder log supply to the detriment of smaller competitors such as Westwood. Alder, which grows mainly in the Northwest and was once considered a weed tree useful only for firewood, is largely used to make furniture and cabinets. Wheeler, who operates additional facilities in Junction City, Saginaw and California, mills and sells alder lumber to other manufacturers. But the bulk of Westwood's alder is used to make Fender guitar bodies and Purdy paint brush blanks. Wheeler has about 160 employees. "It's always a battle to keep our mill supplied," Wheeler said, adding he has had to shut down the Reedsport mill intermittently for periods totaling about two weeks annually over the past three years due to a lack of logs. The other plaintiffs include Morton Alder Mill of Willamina, about 30 miles northwest of Salem, and two mills in Washington - Cascade Hardwoods of Chehalis and Alexander Lumber Mill in Onalaska. In addition to asking for damages, the independent mill owners are seeking a court-ordered breakup of Weyerhaeuser's six-mill Northwest Hardwoods Division, claiming the company holds a virtual monopoly on the alder industry. Weyerhaeuser enjoys a 75 percent market share in the alder lumber market, according to the lawsuit. "Weyerhaeuser's anti-competitive behavior is so pervasive and deeply rooted in the management of Northwest Hardwoods that it cannot be reformed," said Michael Haglund, the Portland attorney representing the small mills. "Therefore, the alder division needs to be broken up in order to establish a reasonably competitive landscape." Weyerhaeuser operates two Oregon alder sawmills - in Eugene (with 170 employees) and Garibaldi - and four in Washington. Haglund asked the court to order Weyerhaeuser to reduce its alder market share to 40 percent or less. That would mean the company would have to close or sell three or four of its alder mills. "We have operated fairly" Weyerhaeuser disputes the allegations and says it will defend its business practices. "We believe that we have operated fairly in the marketplace and the reason we have been successful in the hardwood marketplace is because our people have done a lot of work to make those mills more efficient," said spokesman Bruce Amundson. "We have invested in those mills to make them more competitive," he added. "This has positioned them to be able to compete effectively against other global producers and to weather economic downturns." Amundson declined to comment on the divestiture motion and other specifics of the case. The outcome of the case could have profound effects on Weyerhaeuser's overall business strategy. The Federal Way, Wash.-based company wants to consolidate the fractured wood products industry in order to better balance supply and demand and improve profits. The industry has suffered mightily from the volatile commodity price swings caused by overproduction in the face of diminishing markets. Weyerhaeuser CEO Steve Rogel has made no secret of his desire to consolidate the industry. The fast-growing company last year acquired Willamette Industries Inc. in a hostile takeover. Before that, Weyerhaeuser bought Canada's MacMillan Bloedel Ltd. In both cases, Weyerhaeuser closed inefficient plants, streamlined operations and shed workers. The company, with $18.5 billion in sales in 2002, is the largest softwood lumber producer in the world. Last year, Weyerhaeuser's hardwood sales, including alder, amounted to $306 million - about 4 percent of the company's wood products business. In 1980, Weyerhaeuser had zero market share in the alder lumber market. Through a series of acquisitions, including purchase of Eugene-based Diamond Wood Products in 1995, Weyerhaeuser is now the dominant player in the alder market. From 1980 through 2001, the number of alder sawmills in Washington and Oregon dwindled from 43 to 15, Haglund said. Proving allegations of illegal monopolistic behavior can be tough, in part because it typically requires demonstrating that one company deliberately tried to run another out of business. But the small mill owners are attacking Weyerhaeuser at a time when the giant has already been pushed back onto its heels by another legal assault. On April 18, a jury in Portland found Weyerhaeuser guilty of using illegal tactics to force a competing alder mill out of business. The jury decided Weyerhaeuser created an illegal monopoly in the alder log market by subsidizing its own alder sawmill in Longview, Wash., with logs below market price from its own land. At the same time, Weyerhaeuser continued to buy large amounts of alder logs elsewhere, decreasing the supply and pumping up the prices that Longview-based Ross-Simmons Hardwoods had to pay for its logs. The jury awarded Ross-Simmons $78.8 million in damages. Weyerhaeuser said it will appeal the verdict. Haglund, who represented Ross-Simmons, will use much of the evidence presented in that case when the new lawsuit by Westwood and the other mills goes to trial. "The evidence is damning," Haglund said. "The jury saw a calculated strategy to drive up log costs and put competitors out of business." Westwood's Wheeler said he used to buy from Weyerhaeuser almost all of the finished alder lumber his firm remanufactured into furniture, guitar bodies and the like. In the mid-1990s, Wheeler sought more alder lumber from Weyerhaeuser to supply his growing business. When Weyerhaeuser resisted, Wheeler told company officials he planned to build his own lumber mill that could produce 25,000 board feet of alder lumber a day, Wheeler alleges in court filings. At a meeting at Weyerhaeuser headquarters in 1997 - after Wheeler bought an old sawmill site in Reedsport - David Weyerhaeuser, heir to the company's founder, told Wheeler that he had a choice: Stay out of the alder sawmill business and remain a significant customer, or go into the sawmill business and be cut off as a customer, according to court documents. "I took the threat seriously," Wheeler said. "The day after that meeting, I changed plans (in order) to quadruple (the sawmill's) production capacity in anticipation of being cut off." Weyerhaeuser Co. never followed through on the threat, but if it had, Westwood would have gone out of business, Wheeler said. Once Wheeler started up the sawmill in 1998, he said he immediately encountered difficulty finding enough logs for it. Wheeler said he discovered that Weyerhaeuser had preferential relationships with large industrial forestland owners in Oregon and Washington. Those relationships are at the heart of the lawsuit. Weyerhaeuser has developed rights of first refusal with most large forestland owners in Oregon and Washington, according to court documents. That leaves little alder available on the open market for the independent mills, and drives up prices on the alder logs that Weyerhaeuser doesn't buy. The lawsuit also alleges that Weyerhaeuser conditions its sales of Douglas fir logs to industrial landowners who also operate softwood sawmills on the commitment of those landowners to sell alder logs harvested off their forestland to Weyerhaeuser. Those large landowner-sawmill operators included Roseburg Forest Products, Georgia-Pacific, Rayonier and Crown Pacific, according to documents from the Ross-Simmons case. Wheeler said his company's log buyer about three years ago met with Roseburg Forest officials in an attempt to buy alder logs. Roseburg does not have an alder sawmill. A Roseburg official told Wheeler's log buyer that "we own half the alder in the state of Oregon, (and) I highly recommend you try to buy the other half," Wheeler said. Haglund argues that these tactics, when used by a monopolist, are illegal. The lawsuit seeks a temporary restraining order to force Weyerhaeuser and those it buys alder logs from to stop the "anti-competitive" practices and begin accepting competitive bids from all alder mills. "All we want is an open bid procedure," Haglund said. "When you have a 75 percent (market share) player that nobody wants to offend, it is a violation of anti-trust law." Wheeler said he is not looking for preferential treatment from the court, only for the right to compete fairly and openly for alder sawlogs. Last year, Wheeler said he decided not to invest in new machinery to improve the efficiency and increase the capacity of the Reedsport mill pending the outcome of the Ross-Simmons case against Weyerhaeuser. He said he worried that if Weyerhaeuser prevailed, it would embolden the company to become even more aggressive toward competitors. When Ross-Simmons won its $78.8 million verdict last month, Wheeler immediately started upgrading. "Because of that, I feel pretty comfortable about where this thing is going," he said. "We'll probably add another seven or eight employees." The four mills suing Weyerhaeuser seek a total of $33.7 million in damages. If they prevail, the damages would be tripled under the Sherman Antitrust Act. Haglund said he expects the case to go to trial before the end of the year. -