[Federal Register Volume 63, Number 42 (Wednesday, March 4, 1998)]
[Notices]
[Pages 10628-10631]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-5535]
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FEDERAL TRADE COMMISSION
[File No. 951-0006]
Stone Container Corp.; Analysis to Aid Public Comment
AGENCY: Federal Trade Commission.
ACTION: Proposed consent agreement.
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SUMMARY: The consent agreement in this matter settles alleged
violations of federal law prohibiting unfair or deceptive acts or
practices or unfair methods of competition. The attached Analysis to
Aid Public Comment describes both the allegations in the draft
complaint that accompanies the consent agreement and the terms of the
consent order--embodied in the consent agreement--that would settle
these allegations.
DATES: Comments must be received on or before May 4, 1998.
ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,
Room 159, 6th St. and Pa. Ave., NW., Washington, DC 20580.
FOR FURTHER INFORMATION CONTACT: Michael Antalics, FTC/S-2627,
Washington, DC 20580. (202) 326-2821.
SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Sec. 2.34 of the
Commission's rules of practice (16 CFR 2.34), notice is hereby given
that the above-captioned consent agreement containing a consent order
to cease and desist, having been filed with the accepted, subject to
final approval, by the Commission, has been placed on the public record
for a period of sixty (60) days. The following Analysis to Aid Public
Comment describes the terms of the consent agreement, and the
allegations in the complaint. An electronic copy of the full text of
the consent agreement package can be obtained from the FTC Home Page
(for February 25, 1998), on the World Wide Web, at ``http://
www.ftc.gov/os/actions/htm.'' A paper copy can be obtained from the FTC
Public Reference Room, Room H-130, Sixth Street and Pennsylvania
Avenue, NW., Washington, DC 20580, either in person or by calling (202)
326-3627. Public comment is invited. Such comments or views will be
considered by the Commission and will be available for inspection and
copying at its principal office in accordance with Sec. 4.9(b)(6)(ii)
of the Commission's rules of practice (16 CFR 4.9(b)(6)(ii)).
Analysis of Proposed Consent Order to Aid Public Comment
The Federal Trade Commission has accepted an agreement to a
proposed consent order from Stone Container Corporation (``Stone
Container''), the largest manufacturer of linerboard in the United
States. Stone Container maintains its principal place of business at
150 N. Michigan Avenue, Chicago, Illinois 60601.\1\
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\1\ Stone Container operates linerboard mills in seven states.
Stone Container also operates more than sixty box plants, which
convert linerboard (together with corrugating medium) into
corrugated containers. Linerboard is used as the inner and outer
facing or liner of a corrugated box, and corrugating medium is the
fluted inner material.
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The proposed consent order has been placed on the public record for
sixty (60) days for reception of comments by interested persons.
Comments received during this period will become part of the public
record. After sixty (60) days, the Commission will again review the
agreement and the comments received, and will decide whether it should
[[Page 10629]]
withdraw from the agreement or make final the agreement's proposed
order.
The complaint alleges that during 1993 Stone Container engaged in
acts and practices that, collectively and in the prevailing business
environment, constituted an invitation from Stone Container to
competing linerboard manufacturers to join a coordinated price
increase. This invitation to collude is an unfair method of
competition, and violates Section 5 of the Federal Trade Commission
Act.
In January 1993, Stone Container announced a $30 per ton price
increase for all grades of linerboard, to take effect the following
March. As of March 1993, several major linerboard manufacturers had
failed to announce an equivalent price move, and Stone Container was
forced to withdraw its price increase.
Stone Container concluded that its proposed price increase had
failed to garner the requisite competitor support, in significant part
because Stone Container and other firms in the industry held excess
inventory. A firm that holds unwanted inventory will be tempted to
shade prices in order to increase sales volume (or in any event, rivals
may be concerned about this prospect). Excess inventory therefore acts
as a constraint on prices and impedes coordinated interaction.\2\
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\2\ See United States v. Socony-Vacuum Oil Co., 310 U.S. 150
(1940); FTC v. Elders Grain, Inc., 868 F.2d 901, 906 (7th Cir.
1989); F. Scherer and D. Ross, Industrial Market Structure and
Economic Performance at 268-73 (3d ed. 1990).
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Stone Container developed and implemented a strategy to invite its
competitors to increase the price of linerboard. This invitation, if
accepted by Stone Container's competitors, was likely to result in
higher linerboard prices, reduced output, and injury to consumers. The
centerpiece of this strategy was Stone Container's decision to suspend
production (take ``downtime'') at five of its nine North American
linerboard mills, and simultaneously to arrange to purchase excess
inventory from several of its competitors. These unusual and costly
actions to reduce and reallocate industry inventory were undertaken in
full view of competing linerboard manufacturers, and with the intent of
securing their support for a price increase.
During late June and early July 1993, Stone Container conducted a
telephone survey of major U.S. linerboard manufacturers, asking
competitors how much linerboard was available for purchase and at what
price. Based upon its survey, Stone Container decided to reduce its
linerboard production by approximately 187,000 tons.\3\ This was the
single largest voluntary reduction in output in the history of the U.S.
linerboard industry. During the term of the mill downtime, Stone
Container planned to purchase approximately 100,000 tons of linerboard
from competitors, and to reduce its own linerboard inventories by
approximately 87,000 tons.
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\3\ During the third quarter of 1993, Stone Container took
downtime at four linerboard mills in the United States and one in
Canada for periods ranging from two weeks to two months.
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Stone Container subsequently communicated to competitors its
intention to take mill downtime and to draw down industry inventory
levels, and its belief that these actions would support a price
increase. The methods of communication included public statements--
press releases and published interviews. Stone Container also
communicated its scheme through direct, private conversations with high
level executives of its competitors that were outside of the ordinary
course of business. Senior officers of Stone Container contacted their
counterparts at competing linerboard manufacturers to inform them of
the extraordinary planned downtime and Stone Container's plan to make
substantial linerboard purchases from its competitors. In the course of
these communications, Stone Container arranged and agreed to purchase a
significant volume of linerboard from each of several competitors.
Stone Container's intent was to coordinate an industry-wide price
increase; there was no independent legitimate business justification
for the company's actions. The unprecedented mill downtime was not a
response to the company's own inventory build-up. Further, it would
have been less costly for the company to self-manufacture linerboard
(at its idled mills) than to purchase inventory from its competitors.
Mill downtime and linerboard acquisitions were mechanisms that enabled
Stone Container to be seen by competitors as incurring significant
costs in order to manipulate industry supply conditions. These,
together with other public and private communications, were a signal to
rival firms to join in a coordinated price increase.
The Chairman and Chief Executive Officer of Stone Container has
stated that the cost to the company of taking massive mill downtime was
approximately $26 million, but that this investment was beneficial for
the company and the linerboard industry. He has characterized the
company's strategy as an ``unqualified success'' that helped to ``jump
start'' an industry-wide price increase in October of 1993.
Invitations to collude have been judged unlawful under section 2 of
the Sherman Act (attempted monopolization),\4\ and under the federal
wire and mail fraud statutes.\5\ In addition, in recent years the
Commission has entered into several consent agreements in cases
alleging that an invitation to collude violates section 5 of the FTC
Act. Precision Moulding Co., C-3682 (1996); YKK (U.S.A.) Inc., C-3345
(1993); A.E. Clevite, Inc., C-3429 (1993); Quality Trailer Products
Corp., C-3403 (1992).
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\4\ United States v. American Airlines, 743 F.2d 1114 (5th Cir.
1984), cert. dismissed, 474 U.S. 1001 (1985).
\5\ United States v. Ames Sintering Co., 927 F.2d 232 (6th Cir.
1990).
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These cases illustrate that an invitation to collude may be
communicated in explicit fashion. E.g., American Airlines, 743 F.2d at
1116 (``I have a suggestion for you. Raise your goddamn fares twenty
percent. I'll raise mine the next morning.''). Alternatively, the
invitation may be implicit in the respondent's words and deeds.\6\
E.g., Precision Moulding Co. (alleging that during an uninvited visit
to the headquarters of a competitor, respondent informed competitor
that its prices were ``ridiculously low'' and that the competitor did
not have to ``give the product away'').\7\ Whether explicitly or
implicitly, the respondent communicates its request that the competitor
increase its prices, together with the assurance that respondent will
follow--and not seek to undercut--upward price leadership.
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\6\ See P. Areeda and H. Hovenkamp, Antitrust Law para. 1419.1d1
(1997 Supp.) (``To demand utter clarity . . . would unrealistically
ignore the diverse and often veiled language of would-be
conspirators.'').
\7\ See also United States v. General Electric Co., 1977-2 Trade
Cas. (CCH) para. 61,659 (E.D. Pa. 1977) (General Electric adopted a
price protection policy under which, if it offered a discount to a
customer, it obligated itself to give the same discount
retroactively to all other customers that bought the product within
the previous six months. The district court recognized that, in
effect, the company was offering its competitor assurances that
General Electric would not engage in price discounting because of
the substantial self-imposed penalty involved).
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In the present case, it is alleged that Stone Container's course of
conduct implicitly invited competing linerboard manufacturers to joint
a coordinated price increase. As noted above, senior officers of Stone
Container allegedly communicated to competitors Stone Container's
intention to reduce its linerboard production, to draw down its
inventory, and simultaneously to purchase competitors' unneeded
[[Page 10630]]
inventories. The complaint identifies additional factors that support
the characterization of these actions as an invitation to collude: the
mill downtime and the linerboard acquisitions were outside of the
ordinary course of business; the high-level communications initiated by
Stone Container were likewise extraordinary; and the entire scheme was
undertaken with the purpose of securing an industry-wide price increase
and without an independent legitimate business justification.
Stone Container has signed a consent agreement containing the
proposed consent order. Stone Container would be enjoined from
requesting, suggesting, urging, or advocating that any manufacturer or
seller of linerboard raise, fix, or stabilize prices or price levels.
The proposed consent order also prohibits Stone Container from entering
into, adhering to, or maintaining any combination, conspiracy,
agreement, understanding, plan or program with any manufacturer or
seller of linerboard to fix, raise, establish, maintain, or stabilize
prices or price levels.
The purpose of this analysis is to facilitate public comment on the
proposed order, and it is not intended to constitute an official
interpretation of the agreement and proposed order or to modify in any
way their terms.
Donald S. Clark,
Secretary .
Concurring Statement of Commissioners Robert Pitofsky, Sheila F.
Anthony and Mozelle W. Thompson
In the Matter of: Stone Container Corporation, File No. 951
0006.
The Commission recognizes that in invitation to collude cases, a
fundamental question is whether the alleged ``invitation'' was merely
legitimate business conduct. Our colleague, Commissioner Orson Swindle,
dissents in this matter on grounds that Stone Container Corporation's
behavior in curtailing its own production, and simultaneously
purchasing excess inventory from its competitors, was conduct that did
not clearly lack an ``independent legitimate business reason.'' As the
Analysis To Aid Public Comment emphasizes, however, it would have been
more economical for Stone Container to keep its plants open than to
purchase inventory from competitors, and competitors would have
recognized that fact. This conduct and other statements by Stone
Container made clear that its goal was to manipulate industry supply
conditions to invite a coordinated price increase. It is for these
reasons that we accept the consent agreement for public comment.
While there may be some difference of view on the facts in this
matter, we agree with Commissioner Swindle that there can be no implied
invitation to collude when the actions that amount to the invitation
are justified by business considerations.
Dissenting Statement of Commissioner Orson Swindle
In the Matter of: Stone Container Corporation, File No. 951 0006.
I have voted against the Commission's acceptance of a consent
agreement in this case because I do not believe that the facts
unearthed and presented in the investigation support the allegation
that Stone Container (``Stone'') invited its competitors ``to join a
coordinated price increase.''
The Commission's proposed complaint alleges that Stone took several
actions in the second half of 1993 that amounted to an invitation to
collude on linerboard prices. According to the complaint, Stone's
invitation-to-collude strategy consisted at the outset of a plan ``to
take downtime as its plants, to reduce its production by approximately
187,000 tons, and contemporaneously to purchase 100,000 tons of
linerboard from competitors and to reduce Stone Container's inventory
by 87,000 tons.'' To carry out this plan, Stone allegedly'' conducted a
telephone survey of major U.S. linerboard manufacturers, asking
competitors how much linerboard was available for purchase and at what
price.''
Pursuant to its scheme, Stone's ``[s]enior officers''--whose role
in this regard is alleged to have been ``outside the ordinary course of
business''--``contacted their counterparts at competing linerboard
manufacturers to inform them of the extraordinary planned downtime and
linerboard purchases.'' Stone ``arranged and agreed to purchase a
significant volume of linerboard from each of several competitors'' and
is alleged to have ``communicated to competitors''--both in private
conversations and through public statements--``its intention to take
mill downtime and to draw down industry inventory levels, and its
belief that these actions would support a price increase.'' The
complaint asserts that Stone's communications with its competitors on
these subjects were made with ``[t]he specific intent . . . to
coordinate an industry wide price increase'' and that Stone's actions
``were undertaken with anticompetitive intent and without an
independent legitimate business reason'' (emphasis added).
I have quoted at length from the proposed complaint because it
(together with the Analysis To Aid Public Comment) is the document in
which the Commission sets forth its theory of violation and, to the
extent permissible, the evidence underlying that theory. As I see it,
the acts and communications of Stone alleged in the complaint, as well
as other evidence in this case, do not sufficiently support the
Commission's theory of violation.
As 1993 approached, Stone and other firms in the linerboard
industry had been and were experiencing financial difficulties,
including excess production capacity, alleged excess inventory, and
depressed price levels. It should hardly be surprising that Stone chose
mill downtime and inventory reductions as a normal competitive response
to general industry conditions. ``Extraordinary'' as Stone's downtime
and inventory purchases may have been, it is difficult to second-guess
the rationality of those actions from a business perspective. The
assertion in the complaint that Stone's actions ``were undertaken with
anticompetitive intent and without an independent legitimate business
reason'' is a considerable stretch.1 If senior officials of
Stone had been more circumspect in their statements--particularly their
public statements--about Stone's reasons for its own downtime and
purchase decisions, I doubt that the Commission would have considered
this matter a worthy target of our scarce resources.
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\1\ In their Concurring Statement, my colleagues rely on the
Analysis To Aid Public Comment in this case for the proposition that
``it would have been more economical for Stone Container to keep its
plants open than to purchae inventory from competitors . . .'' With
all due respect, it is precisely the truth of that assertion that I
find insufficiently supported by the evidence.
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The Commission's Analysis To Aid Public Comment discusses explicit
and implicit invitations to collude and places the present situation in
the latter category. I agree with that categorization as far as it
goes, since no one from Stone is alleged to have contacted a competitor
and baldly suggested a price increase or an output reduction (and thus
this case is not a replay of American Airlines). Instead, it is the
totality of Stone's conduct--when judged against the backdrop of
Stone's remarks concerning low prices, excess capacity, and possibly
inventory overhang--that has led the Commission to conclude that Stone
implicitly invited its competitors to collusively raise
prices.2 I am unable to place on
[[Page 10631]]
Stone's actions (and its explanations of them) the sinister
characterization that would permit me to condemn its otherwise
justifiable actions. I am concerned that the Commission's decision in
this case may deter corporate officials from making useful public
statements (e.g., in speeches to investors or presentations to
securities analysts) that candidly address industry conditions,
individual firms' financial situations, and other important subjects.
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\2\ The Analysis To Aid Public Comment cites Precision Moulding
Co., Inc., Docket No. C-3682, as an example of an implicit
invitation to collude. According to the Analysis, Precision Moulding
``informed [its] competitor that its prices were `ridiculously low'
and that the competitor did not have to `give' the product away.' ''
I do not consider Stone's conduct and language to have communicated
a message nearly as pointed as that conveyed by Precision Moulding.
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I respectfully dissent.
[FR Doc. 98-5535 Filed 3-3-98; 8:45 am]
BILLING CODE 6750-01-M