[Federal Register Volume 61, Number 123 (Tuesday, June 25, 1996)]
[Notices]
[Pages 32820-32824]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16113]
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FEDERAL TRADE COMMISSION
[File No. 921-0050]
New Balance Athletic Shoe, Inc.; Proposed Consent Agreement with
Analysis to Aid Public Comment
AGENCY: Federal Trade Commission.
ACTION: Proposed consent agreement.
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SUMMARY: In settlement of alleged violations of federal law prohibiting
unfair or deceptive acts or practices and unfair methods of
competition, this consent agreement, accepted subject to final
Commission approval, would prohibit, among other things, the Boston,
Massachusetts-based shoe manufacturer from fixing, controlling, or
maintaining the resale prices at which retailers advertise, promote, or
offer for sale any New Balance athletic or casual footwear. It also
prohibits New Balance from coercing or pressuring any retailer to
maintain or adopt any resale price and from attempting to secure their
commitment to any resale price. This consent agreement settles
allegations that New Balance entered into agreements with some of its
retailers to restrict price competition, thereby raising prices for
consumers.
DATES: Comments must be received on or before August 26, 1996.
ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,
Room 159, 6th St. and Pa. Ave., N.W., Washington, D.C. 20580.
FOR FURTHER INFORMATION CONTACT:
William Baer, Federal Trade Commission, H-374, 6th and Pennsylvania
Ave, NW, Washington, DC 20580. (202) 326-2932. Michael Bloom, Federal
Trade Commission, New York Regional Office, 150 William Street, Suite
1300, New York, NY 10038. (212) 264-1201.
SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal
Trade
[[Page 32821]]
Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Section 2.34 of the
Commission's Rules of Practice (16 CFR 2.34), notice is hereby given
that the following consent agreement containing a consent order to
cease and desist, having been filed with and accepted, subject to final
approval, by the Commission, has been placed on the public record for a
period of sixty (60) days. 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
Section 4.9(b)(6)(ii) of the Commission's Rules of Practice (16 CFR
4.9(b)(6)(ii)).
Agreement Containing Consent Order to Cease and Desist
Commissioners: Robert Pitofsky, Chairman, Mary L. Azcuenaga,
Janet D. Steiger, Roscoe B. Starek, III, Christine A. Varney.
The Federal Trade Commission having initiated an investigation of
certain acts and practices of New Balance Athletic Shoe, Inc, and it
now appearing that New Balance Athletic Shoe, Inc., hereinafter
sometimes referred to as proposed respondent, is willing to enter into
an agreement containing an order to cease and desist from engaging in
the acts and practices being investigated,
It is hereby agreed by and between New Balance Athletic Shoe, Inc.,
by its duly authorized officers, and its attorneys, and counsel for the
Federal Trade Commission that:
1. Proposed respondent New Balance Athletic Shoe, Inc. is a
corporation organized, existing and doing business under and by virtue
of the laws of the State of Massachusetts. The mailing address and
principal place of business of proposed respondent is: 61 North Beacon
Street, Boston, Massachusetts 02134.
2. Proposed respondent admits all the jurisdictional facts set
forth in the draft of complaint.
3. The proposed respondent waives:
(a) Any further procedural steps;
(b) The requirement that the Commission's decision contain a
statement of findings of fact and conclusions of law;
(c) All rights to seek judicial review or otherwise to challenge or
contest the validity of the order entered pursuant to this agreement;
and
(d) Any claim under the Equal Access to Justice Act.
4. This agreement shall not become part of the public record of the
proceeding unless and until it is accepted by the Commission. If this
agreement is accepted by the Commission it, together with the draft of
complaint contemplated thereby, will be placed on the public record for
a period of sixty (60) days and information in respect thereto publicly
released. The Commission thereafter may either withdraw its acceptance
of this agreement and so notify the proposed respondent, in which event
it will take such action as it may consider appropriate, or issue and
serve its complaint (in such form as the circumstances may require) and
decision, in disposition of the proceeding.
5. This agreement is for settlement purposes only and does not
constitute an admission by proposed respondent that the law has been
violated as alleged in the draft of complaint, or that the facts as
alleged in the draft complaint, other than jurisdictional facts, are
true.
6. This agreement contemplates that, if it is accepted by the
Commission, and if such acceptance is not subsequently withdrawn by the
Commission pursuant to the provisions of Sec. 2.34 of the Commission's
Rules, the Commission may, without further notice to proposed
respondent, (1) issue its complaint corresponding in form and substance
with the draft of complaint and its decision containing the following
order to cease and desist in disposition of the proceeding and (2) make
information public in respect thereto. When so entered, the order to
cease and desist shall have the same force and effect and may be
altered, modified or set aside in the same manner and within the same
time provided by statute for other orders. The order shall become final
upon service. Delivery by the U.S. Postal Service of the complaint and
decision containing the agreed-to order to proposed respondent's
addresses as stated in this agreement shall constitute service.
Proposed respondent waives any right it may have to any other manner of
service. The complaint may be used in construing the terms of the
order, and no agreement, understanding, representation, or
interpretation not contained in the order or the agreement may be used
to vary or contradict the terms of the order.
7. The proposed respondent has read the proposed complaint and
order contemplated hereby. It understands that once the order has been
issued, it will be required to file one or more compliance reports
showing that it has fully complied with the order. The proposed
respondent further understands that it may be liable for civil
penalties in the amount provided by law for each violation of the order
after it becomes final.
Order
I
It is ordered That for the purpose of this order, the following
definitions shall apply:
(A) The term ``New Balance'' means New Balance Athletic Shoe, Inc.,
its predecessors, subsidiaries, divisions, groups, and affiliates
controlled by New Balance Athletic Shoe, Inc., and its respective
directors, officers, employees, agents, and representatives, and the
respective successors and assign of each.
(B) The term ``respondent'' means New Balance.
(C) The term ``product'' means any athletic or casual footwear item
which is manufactured, offered for sale or sold under the brand name of
``New Balance'' to dealers or consumers located in the United States of
America.
(D) The term ``dealer'' means any person, corporation or entity not
owned by New Balance, or by any entity owned or controlled by New
Balance, that in the course of its business sells any product in or
into the United States of America.
(E) The term ``resale price'' means any price, price floor, minimum
price, maximum discount, price range, or any mark-up formula or margin
of profit used by any dealer for pricing any product. ``Resale price''
includes, but is not limited to, any suggested, established, or
customary resale price.
II
It is further ordered That New Balance, directly or indirectly, or
through any corporation, subsidiary, division or other device, in
connection with the manufacturing, offering for sale, sale or
distribution of any product in or into the United States of America in
or affecting ``commerce,'' as defined by the Federal Trade Commission
Act, do forthwith cease and desist from:
(A) Fixing, controlling, or maintaining the resale price at which
any dealer may advertise, promote, offer for sale or sell any product.
(B) Requiring, coercing, or otherwise pressuring any dealer to
maintain, adopt, or adhere to any resale price.
(C) Securing or attempting to secure any commitment or assurance
from any dealer concerning the resale price at which the dealer may
advertise, promote, offer for sale or sell any product.
(D) For a period of ten (10) years from the date on which this
order becomes final, adopting, maintaining, enforcing or threatening to
enforce any policy, practice or plan pursuant to which respondent
notifies a dealer in a
[[Page 32822]]
advance that: (1) The dealer is subject to warning or partial or
temporary suspension or termination if its sells, offers for sale,
promotes or advertises any product below any resale price designated by
respondents, and (2) the dealer will be subject to a greater sanction
if it continues or renews selling, offering for sale, promoting or
advertising any product below any such designated resale price. As used
herein, the phrase ``partial or temporary suspension or termination''
includes but is not limited to any disruption, limitation, or
restriction of supply: (1) of some, but not all, products, or (2) to
some, but not all, dealer locations or businesses, or (3) for any
delimited duration. As used herein, the phrase ``greater sanction''
includes but is not limited to a partial or temporary suspension or
termination of greater scope or duration than the one previously
implemented by respondent, or complete suspension or termination.
Provided that nothing in this Order shall prohibit New Balance from
establishing and maintaining cooperative advertising programs that
include conditions as to the prices at which dealers offer products, so
long as such advertising programs are not a part of a resale price
maintenance scheme and do not otherwise violate this order.
III
It is further ordered That, for a period of five (5) years from the
date on which this order becomes final, New Balance shall clearly and
conspicuously state the following on any list, advertising, book,
catalogue, or promotional material where it has suggested any resale
price for any product to any dealer: Although New Balance may suggest
resale prices for products, retailers are free to determine on their
own the prices at which they will advertise and sell New Balance
products.
IV
It is further ordered That, within (30) days after the date on
which this order becomes final, New Balance shall mail by first class
mail the letter attached as Exhibit A, together with a copy of this
order, to all of its directors and officers, and to dealers,
distributors, agents, or sales representatives engaged in the sale of
any product in or into the United States of America.
V
It is further ordered That, for a period of two (2) years after the
date on which this order becomes final, New Balance shall mail by first
class mail the letter attached as Exhibit A, together with a copy of
this order, to each new director, officer, dealer, distributor, agent,
and sales representative engaged in the sale of any product in or into
the United States of America, within ninety (90) days of the
commencement of such person's employment or affiliation with New
Balance.
VI
It is further ordered That New Balance shall notify the Commission
at least thirty (30) days prior to any proposed changes in New Balance
such as dissolution, assignment or sale resulting in the emergence of a
successor corporation, the creation or dissolution of subsidiaries, or
any other change in the corporations which may affect compliance
obligations arising out of the order.
VII
It is further ordered That, within sixty (60) days after the date
this order becomes final, and at such other times as the Commission or
its staff shall request, New Balance shall file with the Commission a
verified written report setting forth in detail the manner and form in
which New Balance has complied and is complying with this order.
VIII
It is further ordered That this order shall terminate on July 15,
1996.
Exhibit A [New Balance Letterhead]
Dear Retailer: The Federal Trade Commission has conducted an
investigation into New Balance's sales policies, and in particular
New Balance's ``Statement of Policy,'' which was announced in July
1991 and, with modifications, has remained in effect since then. To
expeditiously resolve the investigation and to avoid disruption to
the conduct of its business, New Balance has agreed, without
admitting any violation of the law, to the entry of a Consent Order
by the Federal Trade Commission prohibiting certain practices
relating to resale prices. A copy of the Order is enclosed. This
letter and the accompanying Order are being sent to all of our
dealers, sales personnel and representatives.
The Order spells out our obligations in grater detail, but we
want you to know and understand that you can sell and advertise our
products at any price you choose. While we may send materials to you
which contain suggested retail prices, you remain free to sell and
advertise those products at any price you choose.
We look forward to continuing to do business with you in the
future.
Sincerely yours,
________
President, New Balance Athletic Shoe, Inc.
Analysis of Proposed Consent Order To Aid Public Comment
The Federal Trade Commission has accepted an agreement to a
proposed consent order from New Balance Athletic Shoe, Inc. (``New
Balance'').
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 is should
withdraw from the agreement or make final the agreement's proposed
order.
I. The Proposed Complaint
The Commission has issued a proposed complaint against New Balance
that alleges that New Balance has entered into combinations, agreements
and understandings with certain of its dealers to fix the resale prices
at which dealers sell its athletic footwear. The complaint further
alleges that this conduct violates Section 5 of the Federal Trade
Commission Act.
To assist the public in understanding the circumstances under which
the Commission may find a price agreement between a manufacturer and a
retailer, the Commission's proposed complaint alleges price agreements
in more detail than was contained in prior Commission resale price
maintenance complaints. Specifically, the complaint alleges that New
Balance engaged in various actions with the intent and effect of
inducing certain of its dealers to enter into agreements with New
Balance, pursuant to which the dealers agreed to raise retail prices on
New Balance products, to maintain prices or price levels set by New
Balance, or to refrain from discounting New Balance products. According
to the complaint, these actions of New Balance included, among other
things:
(a) Threatening to suspend or terminate shipments to discounting
retailers and engaging in other coercive acts, such as surveillance of
dealers' prices and demanding that discounting dealers raise their
prices;
(b) Informing dealers that New Balance would act to secure similar
price agreements with other dealers; and
(c) Securing price agreements from discounting dealers after
warning them that continued or subsequent selling of New Balance
products at prices below those set by New Balance would result in
discontinuation of sales to the dealer pursuant to New Balance's
written
[[Page 32823]]
policy stating that it will give a ``one-time warning'' to a dealer who
sells its products below designated prices, and that in the event of
continued or subsequent violation of its policy New Balance will
discontinue selling to that dealer.
The complaint alleges that the purpose, tendency, or effect of the
described New Balance actions is and has been to restrain trade
unreasonably and to hinder competition in the sale of athletic footwear
in the United States, depriving consumers of the benefits of price
competition among retail dealers with respect to the sale of New
Balance products and increasing prices to consumers of those products.
The complaint concludes that the described acts and practices
constitute unfair methods of competition and are illegal.
II. Description of Practices Giving Rise to the Alleged Violations of
the Federal Trade Commission Act
New Balance, a Massachusetts corporation, is a prominent seller of
athletic footwear. New Balance athletic shoes are available in a wider
range of widths than many other athletic shoes, as a result of which
New Balance has a loyal following among customers who wear non-standard
widths.
In 1991, New Balance adopted a policy (hereinafter referred to as
New Balance's ``one-time warning'' policy) under which retailers would
first be warned, then terminated if they sold certain New Balance
products at more than 20% below New Balance's suggested resale prices.
Other versions of the one-time warning policy with minor changes came
into effect at the start of 1993 and 1994.
Instead of enforcing this one-time warning policy through
termination of non-complying retailers, New Balance on occasion used
the policy as a means to enter into agreements with discounting
retailers with respect to resale prices. For example, New Balance urged
retailers to comply, sought expressions of consent, and negotiated the
terms on which certain retailers would comply. As a result of these
actions by New Balance some retailers have raised their retail prices.
As alleged in the complaint, New Balance induced retailers to enter
into these agreements through coercive acts, including surveillance of
retailer prices, threatening to suspend or terminate shipments to
discounting retailers, and demanding that discounting retailers raise
their prices. In addition, New Balance assured retailers that New
Balance would secure similar price agreements from other, competing
retailers or otherwise prevent unapproved discounting of New Balance
athletic shoes.
New Balance, by using the means described, was successful in
inducing recalcitrant retailers to agree to charge prices preferred by
New Balance, irrespective of the pricing preferences of each retailer.
The result of New Balance's actions was to restrict price competition
among retailers of New Balance athletic shoes, increasing New Balance
athletic shoe prices to consumers. Entry into such price agreements
constitute per se violations of the antitrust law prohibition of
agreements in restraint of trade and violate Section 5 of the Federal
Trade Commission Act.
III. Explanation of the Proposed Consent Order
New Balance has signed an agreement containing an order to cease
and desist from engaging in the acts and prices under investigation.
The agreement provides that it is for settlement purposes only and does
not constitute an admission by New Balance that the law has been
violated or that the facts alleged in the complaint (other than
jurisdictional facts) are true. The proposed order requires New Balance
to cease and desist from continuing or renewing the acts and practices
alleged in the complaint, which affected both advertised and in-store
prices. Specifically, Section II(A) of the proposed order requires New
Balance to cease and desist from fixing, controlling, or maintaining
the resale prices at which any dealer may advertise, promote, offer for
sale or sell any New Balance product.
The law generally permits a manufacturer unilaterally to adopt,
announce, and implement a policy of refusing to deal with resellers who
sell at prices other than those preferred by the manufacturer. United
States v. Colgate & Co., 250 U.S. 300 (1919). The manufacturer may not,
however, seek and obtain a reseller's agreement to adhere to the
manufacturer's price preferences. United States v. Parke, Davis & Co.,
362 U.S. 29 (1960). To prevent New Balance from seeking and obtaining
resellers' agreements to adhere to its pricing preferences, Sections II
(B) and (C) of the order prohibit New Balance from requiring, coercing,
or otherwise pressuring any dealer to maintain, adopt, or adhere to any
resale price, and from securing or attempting to secure any commitment
or assurance from any dealer concerning the resale price at which the
dealer may advertise, promote, offer for sale, or sell any product.
Section II(D) addresses New Balance's improper use of its one-time
warning policy. To prevent New Balance from using this policy as a
means to enter into price agreements with non-complying retailers, the
proposed order prohibits New Balance, for a period of ten years from
the date on which the order becomes final, from adopting, maintaining,
threatening to enforce, or enforcing any policy, practice, or plan
under which New Balance notifies a reseller in advance that the
reseller is subject to partial or temporary suspension or termination
if it sells or advertises any product below a resale price designated
by New Balance, and that the dealer will be subject to a greater
sanction if it continues or renews selling or advertising any product
below a designated resale price. The order does not prohibit New
Balance from announcing suggested resale prices in advance and
unilaterally refusing to deal with those who fail to comply.
The proposed order does not prohibit New Balance from establishing
and maintaining cooperative advertising programs that include
conditions as to the prices at which dealers offer products, so long as
such advertising programs are not a part of a resale price maintenance
scheme and do not otherwise violate this order.
The proposed order also contains provisions that are intended to
restore competitive conditions in the market(s) affected by New
Balance's unlawful actions. Section III of the proposed order requires
New Balance, for a period of five years from the date on which the
order becomes final, to place on any material in which it suggests
resale prices a statement that the reseller is free to determine the
prices at which it will sell New Balance products. Section IV of the
proposed order requires New Balance, within thirty days after the date
on which the order becomes final, to mail a letter, together with a
copy of the order, to its directors, officers, dealers, sales
representatives, and specified others, to inform them that resellers of
New Balance products can advertise and sell New Balance products at any
price they choose. Section V of the order, for a period of two years
from the date on which the order becomes final, imposes a similar
requirement with respect to prospective directors, officers, dealers,
sales representatives.
Section VI of the proposed order requires New Balance to provide
the Commission with notice of changes in New Balance, such as the
creation or dissolution of subsidiaries, that may affect its order
compliance obligations. Section VII requires New Balance to file
[[Page 32824]]
a detailed report of the manner and form of its compliance with the
order within sixty days of its becoming final and at such other times
as the Commission may request.
The proposed order provides that the order shall terminate 20 years
after the date of its issuance by the Commission.
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 to modify in any way
their terms.
Donald S. Clark,
Secretary.
Concurring Statement of Commissioner Mary L. Azcuenaga in New Balance
Athletic Shoe, Inc., File No. 921-0050
There is some evidence that New Balance went beyond permissible
communications with its dealers and entered the realm of unlawful
resale price maintenance. An order is, therefore, appropriate. I write
separately to make clear my understanding that the proposed complaint
does not challenge the announcement or implementation by a supplier of
a structured termination policy. although I view Paragraph 4(c) of the
complaint as ambiguous, the essence of the charge is that New Balance
would not impose sanctions on them. New Balance did not implement its
structured termination policy, and the proposed complaint and order do
not address the lawfulness of that policy.
Dissenting Statement of Commissioner Roscoe B. Starek, III In the
Matter of New Balance Athletic Shoe, Inc., File No. 921-0050
As I did in Reebok International, Ltd., Docket No. C-3592, I find
reasons to believe that the target of the present investigation--New
Balance Athletic Shoe, Inc. (``New Balance'')--has entered into
agreements with retailers to restrain retail prices and has thereby
violated Section 5 of the Federal Trade Commission Act, 15 U.S.C. 45.
However, I dissent from the Commission's decision to accept the consent
agreement in this matter because certain provisions of the proposed
Commission order are not required to prevent unlawful conduct and may
instead unnecessarily restrain procompetitive conduct by New Balance.
As in Reebok International, the fencing-in restrictions in the
proposed order relating to resale price advertising (specifically, the
minimum advertised price provisions) \1\ and to New Balance's
``structured termination policy.'' \2\ are unjustifiably broad and
likely to deter efficient conduct. Indeed, the order even goes beyond
the provisions I found over inclusive, and therefore unacceptable, in
the Reebok order: the current order omits language that appeared in
Paragraph II of the Reebok order that expressly recognized the
respondent's Colgate rights.\3\
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\1\ The unnecessary provisions relating to price advertising
appear in Paragraphs II(A), II(B), and III and in Exhibit A to the
proposed order.
\2\ See Paragraph IV(C) of the proposed complaint and Paragraph
II(D) of the proposed order.
\3\ See United States v. Colgate & Co., 250 U.S. 300 (1919).
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In the interests of fairness and efficiency, injunctive relief
ordered to address resale price maintenance should be strictly tailored
to the per se unlawful conduct alleged. Because the proposed order in
this case mandates excessive restrictions upon the conduct of New
Balance, I respectfully dissent.
[FR Doc. 96-16113 Filed 6-24-96; 8:45 am]
BILLING CODE 6750-01-M
