Personal Protective Armor Association, Inc.; Proposed Consent Agreement With Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 921-0070]

Personal Protective Armor Association, 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 acts and practices and unfair methods of competition, this

consent agreement, accepted subject to final Commission approval, would

prohibit, among other things, a Baltimore-based association for

manufacturers of body armor in North America from restricting its

members from engaging in comparative advertising or offering product-

liability insurance, guarantees or warranties on soft body armor, and

from placing any restraints on member advertising, including price

disclosure, product liability, and body armor performance

characteristics.

DATES: Comments must be received on or before March 7, 1994.

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:

Paul Nolan, FTC/S-2624, Washington, DC 20580. (202) 326-2770.

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 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

Sec. 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

The Federal Trade Commission having initiated an investigation of

certain acts and practices of the Personal Protective Armor

Association, Inc., and it now appearing that Personal Protective Armor

Association, 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 the proposed respondent and its

attorney and counsel for the Federal Trade Commission that:

1. Proposed respondent Personal Protective Armor Association, Inc.

(``PPAA'') is a corporation organized, existing and transacting

business under and by virtue of the laws of the State of Tennessee,

with its office and principal place of business located at 3623 Falls

Road, Baltimore, Maryland 21222.

2. PPAA admits all of the jurisdictional facts set forth in the

draft of Complaint here attached.

3. PPAA 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 into 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 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 here attached.

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 of Practice, the Commission may, without further notice to

proposed respondent, (1) Issue its Complaint corresponding in form and

substance with the draft of Complaint here attached 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 as 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 address 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. Proposed respondent has read the proposed draft of 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. 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

For the purposes of this order, the following definitions shall

apply:

A. ``Respondent'' means the Personal Protective Armor Association,

its directors, trustees, councils, committees, officers,

representatives, delegates, agents, employees, successors, or assigns.

B. ``Soft body armor'' means concealable bullet-resistant vests

generally worn by civilians and law enforcement personnel.

II

It is ordered, That Respondent, directly, indirectly, or through

any device, in connection with activities in or affecting commerce, as

``commerce'' is defined by the Federal Trade Commission Act, as

amended, cease and desist from:

A. Entering into, attempting to enter into, organizing, continuing,

or acting in furtherance of any agreement or combination, or carrying

out any agreement between or among Respondent's members, either express

or implied, that prohibits, restricts, impedes, interferes with,

restrains, places limitations on, or advises against:

1. Engaging in comparative advertising, including, but not limited

to prohibiting any member from advertising that any type of soft body

armor meets or fails to meet any ballistic resistance standard; or

2. Offering or providing products liability insurance, guarantees,

or warranties on softly body armor.

B. Restricting, regulating, impeding, declaring unethical,

interfering with, restraining, or advising against the advertising,

publishing, or dissemination by any person of the prices, terms,

availability, characteristics, or conditions of sale of soft body armor

through any means, including, but not limited to, adopting or

maintaining any rule or policy that restricts or prohibits a member

from:

1. Engaging in comparative advertising, including, but not limited

to prohibiting any member from advertising that any type of soft body

armor meets or fails to meet any ballistic resistance standard; or

2. Offering or providing products liability insurance, guarantees,

or warranties on soft body armor.

Provided, That nothing contained in this Paragraph II shall

prohibit Respondent from formulating, adopting, disseminating to its

members, and enforcing reasonable ethical guidelines governing the

conduct of its members with respect to representations, including

unsubstantiated representations, that Respondent reasonably believes

would be false or deceptive within the meaning of section 5 of the

Federal Trade Commission Act.

III

It is further ordered, That Respondent:

A. Distribute by first-class mail a copy of this Order and the

Complaint to each of its members within thirty (30) days after the date

this Order become final.

B. For a period of five (5) years after the date this Order becomes

final, provide each new member who joins PPAA with a copy of the Order

and Complaint within thirty (30) days of membership into PPAA.

C. File a verified, written report with the Commission within sixty

(60) days after the date this Order becomes final, and annually

thereafter for five (5) years on the anniversary of the date this Order

becomes final, and at such other times as the Commission may, by

written notice to PPAA, require, setting forth in detail the manner and

form in which it has complied and is complying with the Order.

D. For a period of five (5) years after the date this Order becomes

final, maintain and make available to Commission staff for inspection

and copying upon reasonable notice, records adequate to describe in

detail any action taken in connection with any activity covered by Part

II of this Order.

IV

It is further ordered, That PPAA shall notify the Commission at

least thirty (30) days prior to any change in the corporation such as

dissolution, assignment, or sale, resulting in the emergence of a

successor corporation, the creation or dissolution of subsidiaries, and

any other change that may affect compliance with this order.

Analysis of Proposed Consent Order To Aid Public Comment

The Federal Trade Commission has accepted an agreement to a

proposed consent order from Personal Protective Armor Association

(``PPAA''), which is located in Baltimore, Maryland. The agreement

would settle charges by the Commission that the proposed respondent

violated section 5 of the Federal Trade Commission Act by engaging in

practices that restricted competition among PPAA members.

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

withdraw from the agreement or make final the agreement's proposed

order.

The Complaint

The complaint prepared for issuance by the Commission along with

the proposed order alleges that PPAA and its members have engaged in

acts and practices that have unreasonably restrained competition among

manufacturers of soft body armor. The complaint alleges that PPAA

members have maintained a policy against comparative advertising and

have adopted a policy not to compete in offering products liability

insurance to law enforcement agencies.

According to the complaint, advertising, including comparative

advertising and advertising of warranties and products liability

insurance, enables firms to inform consumers as to the quality, price,

and terms of sale of the product. Consumers consider terms of sale such

as products liability insurance and certification that the soft body

armor passes applicable performance standards. Comparative advertising

and advertising of warranties and products liability insurance enables

firms to inform consumers about these factors and increases the

information available to consumers.

The complaint states that, during some periods, from 1986 to the

present, PPAA has maintained a policy against comparative advertising,

including a policy which declares it unethical for any member to make

any representation that another member's vests have failed

certification testing. The complaint also states that, during some

periods, from 1986 to the present, PPAA adopted a policy to respond

uniformly to bids by not offering products liability insurance in

competing for contracts from law enforcement agencies.

The complaint alleges that the purposes or effects of the

challenged act or practice have been to restrain competition

unreasonably:

a. By frustrating and restraining competition in the marketing and

sale of soft body armor on the basis of price, service, and quality;

b. By depriving consumers of the benefits of truthful information

about the performance of soft body armor;

c. By depriving consumers of the potential value of warranties,

including products liability insurance, in the purchase of soft body

armor.

The Proposed Consent Order

Part I of the order covers definitions. These definitions make

clear that the consent order applies to directors, trustees, councils,

committees, officers, representatives, delegates, agents, employees,

successors, or assigns of PPAA. The order also defines ``soft body

armor'' as concealable bullet-resistant vests generally worn by

civilians and law enforcement personnel.

Part II of the order describes the conduct prohibited by the order.

Part II prevents PPAA from entering into or carrying out any agreement

between or among its members that restricts engaging in comparative

advertising or restricts offering or providing products liability

insurance. Part II also prevents PPAA from restricting or interfering

with the advertising or dissemination of prices, terms, availability,

characteristics, or conditions of sale of soft body armor by adopting a

policy which restricts or prohibits a member from engaging in

comparative advertising or offering or providing products liability

insurance.

Part III of the order requires PPAA to furnish a copy of the

Commission's order to each of its members; to provide each new member

who joins PPAA with a copy of the Order and complaint; and to file

compliance reports for five years.

Benjamin I. Berman,

Acting Secretary.

Concurring Statement of Commissioner Roscoe B. Starek, III

I concur in the Commission's decision to accept for public

comment the Consent Order in this matter. The evidence demonstrates

that ten companies, representing more than 90% of U.S. sales of

protective body armor, engaged in unreasonable restraints of trade

in violation of section 5 of the Federal Trade Commission Act, 15

U.S.C. 45. The agreements here restrain significant dimensions of

competitive rivalry among body armor manufacturers. Therefore, they

appear likely, absent an efficiency justification, to restrict

output. The respondent has not proffered any efficiency

justification for the restraints. Under the standards set forth in

the Commission's decision in Massachusetts Board of Registration in

Optometry,\1\ and its progeny, this ``inherently suspect'' conduct

is appropriately condemned without a full rule of reason analysis.

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\1\110 F.T.C. 549, 604 (1988).

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In my view, however, it may have been appropriate to name as

respondents the members of the Personal Protective Armor Association

(``PPAA''). This case is not typical of the Commission's cases

challenging anticompetitive conduct of state licensing boards and

trade associations. In most such cases, the board or association

represents hundreds or thousands of competing entities.\2\ Naming

individual members as respondents in such cases is generally

impracticable: It may unnecessarily complicate litigation or create

intractable problems for settlement negotiations.\3\ More

importantly, naming members is often unnecessary: The respondent

board or association is typically the only (or only effective) means

by which the multitude of competitors can reach and enforce an

agreement restraining competition.

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\2\See, e.g., American Medical Association, 94 F.T.C. 701, 702

(1979) (membership consisting of approximately 170,000 medical

doctors); Mass. Board, 110 F.T.C. at 560 (more than 1350

optometrists subject to the Board's restraints); Detroit Auto

Dealers Association, Inc., 111 F.T.C. 475, 419 (1989) (membership

consisting of 231 automobile dealerships).

\3\But see Detroit Auto Dealers, 111 F.T.C. at 518-521 (addenda

to final order) (naming as respondents the association, 17

constituent associations, 96 member dealerships, and 81

individuals).

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By contrast, competitors in the relatively concentrated

protective body armor industry may be able to collude effectively

outside the auspices of the PPAA or any other formal trade

association.\4\ If so, the proposed Consent Order, which names only

the PPAA as a respondent, may provide an insufficient remedy. So

long as the PPAA is not involved,\5\ the same body armor

manufacturers could engage in collusive conduct falling squarely

within the core cease and desist provisions of the Order without

exposure to civil penalties under section 5(l) of the FTC Act, 15

U.S.C. 45(l).\6\

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\4\Thus, unlike many cases involving association restraints in

which the respondent association itself is a critical first mover,

the conduct at issue here constitutes archetypal cartel behavior in

which this particular association's involvement may be merely

detail.

\5\Under the Order, respondent PPAA is defined to include any

association that can be held to be a legal successor. The evidence

does not clearly indicate whether or not PPAA has any structural,

legal, or historical advantage that would impede the creation of a

new, non-successor body armor trade association.

\6\Of course, this conduct would expose these firms to private

and state actions for damages under section 4 of the Clayton Act, 15

U.S.C. 15. Such exposure, however, apparently did not deter the

conduct that led to the Commission's action in this matter.

In determining the optimal scope of any future enforcement

actions against anticompetitive restraints facilitated by a trade

association, the necessity of the particular association to

effective collusion among its members should be considered

carefully.

[FR Doc. 94-154 Filed 1-4-94; 8:45 am]

BILLING CODE 6750-01-M