Reebok International Ltd., et al.; Proposed Consent Agreement With Analysis to Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 921 0117]

Reebok International Ltd., et al.; 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 Massachusetts corporation and its

subsidiary from fixing, controlling or maintaining the resale prices at

which any dealer may advertise, promote, offer for sale or sell any

Reebok or Rockport product. The Consent agreement also would prohibit,

for a period of ten years, the respondents from enforcing or

threatening suspension or termination of a dealer that sells or

advertises a product below a resale price designed by Reebok or

Rockport.

DATES: Comments must be received on or before July 10, 1995.

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: Alan Loughnan, New York Regional

Office, Federal Trade Commission, 150 William St., Suite 1300, New

York, NY 10038. (212) 264-0459.

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)).

Commissioners: Janet D. Steiger, Chairman, Mary L. Azcuenaga, Roscoe

B. Starek, III, Christine A. Varney

In the matter of Reebok International Ltd., and the Rockport

Company, Inc., corporations File No. 921 0117

Agreement Containing Consent Order to Cease and Desist

The Federal Trade Commission having initiated an investigation of

certain acts and practices of Reebok International Ltd. and The

Rockport Company, Inc., a subsidiary of Reebok International Ltd., and

it now appearing that Reebok International Ltd. and The Rockport

Company, Inc., hereinafter sometimes referred to as proposed

respondents, are 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 Reebok International Ltd. and

The Rockport Company, Inc., by their duly authorized officers, and

their attorneys, and counsel for the Federal Trade Commission that:

1. Proposed respondents Reebok International Ltd. and The Rockport

Company, Inc., a subsidiary of Reebok International Ltd., are

corporations 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 Reebok International

Ltd. is: 100 Technology Center Drive, Stoughton, Massachusetts 02072.

The mailing address and principal place of business of proposed

respondent The Rockport Company, Inc. [[Page 25228]] is: 220 Donald

Lynch Boulevard, Marlboro, Massachusetts 01752.

2. Proposed respondents admit all the jurisdictional facts set

forth in the draft of complaint here attached.

3. The proposed respondents waive:

(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 respondents, 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 respondents that the law has been

violated as alleged in the draft of complaint here attached, 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

respondents, (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

respondents' addresses as stated in this agreement shall constitute

service. Proposed respondents waive any right they 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 respondents have read the proposed complaint and

order contemplated hereby. They understand that once the order has been

issued, they will be required to file one or more compliance reports

showing that they have fully complied with the order. The proposed

respondents further understand that they 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 ``Reebok'' means Reebok International Ltd., its

predecessors, subsidiaries, divisions, groups, and affiliates

controlled by Reebok International Ltd., and its respective directors,

officers, employees, agents, and representatives, and the respective

successors and assigns of each.

(B) The term ``Rockport'' means The Rockport Company, Inc., its

predecessors, subsidiaries, divisions, groups, and affiliates

controlled by the Rockport Company, Inc., and its respective directors,

officers, employees, agents, and representatives, and the respective

successors and assigns of each.

(C) The term ``respondents'' means Reebok and Rockport.

(D) The term ``product'' means any athletic or casual footwear item

which is manufactured, offered for sale or sold under the brand name of

``Reebok'' or ``Rockport'' to dealers or consumers located in the

United States of America.

(E) The term ``dealer'' means any person, corporation or entity not

owned by Reebok or Rockport, or by any entity owned or controlled by

Reebok or Rockport, that in the course of its business sells any

product in or into the United States of America.

(F) 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 Reebok and Rockport, 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, directly or

indirectly:

(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 respondents

notify a dealer in advance that: (1) The dealer is subject to partial

or temporary suspension or termination if it 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 Reebok and

Rockport from announcing resale prices in advance and unilaterally

refusing to deal with those who fail to comply. Provided further that

nothing in this Order shall prohibit Reebok and Rockport 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 part of a resale price

[[Page 25229]] 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, Reebok 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 REEBOK MAY SUGGEST RESALE PRICES FOR PRODUCTS,

RETAILERS ARE FREE TO DETERMINE ON THEIR OWN THE PRICES AT WHICH

THEY WILL ADVERTISE AND SELL REEBOK PRODUCTS.

IV

It is further ordered that, for a period of five (5) years from the

date on which this order becomes final, Rockport 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 ROCKPORT MAY SUGGEST RESALE PRICES FOR PRODUCTS,

RETAILERS ARE FREE TO DETERMINE ON THEIR OWN THE PRICES AT WHICH

THEY WILL ADVERTISE AND SELL ROCKPORT PRODUCTS.

V

It is further ordered that, within thirty (30) days after the date

on which this order becomes final, Reebok 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.

VI

It is further ordered that, within thirty (30) days after the date

on which this order becomes final, Rockport shall mail by first class

mail the letter attached as Exhibit B, 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.

VII

It is further ordered that, for a period of two (2) years after the

date on which this order becomes final, Reebok 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 Reebok.

VIII

It is further ordered that, for a period of two (2) years after the

date on which this order becomes final, Rockport shall mail by first

class mail the letter attached as Exhibit B, 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 Rockport.

IX

It is further ordered that Reebok or Rockport shall notify the

Commission at least thirty (30) days prior to any proposed changes in

Reebok or Rockport 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.

X

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, Reebok and Rockport shall file with the

Commission a verified written report setting forth in detail the manner

and form in which Reebok and Rockport have complied and are complying

with this order.

XI

It is further ordered that this order shall terminate on [insert

date twenty years after date of issuance].

Exhibit A

[Reebok Letterhead]

Dear Retailer: The Federal Trade Commission has conducted an

investigation into Reebok's sales policies, and in particular

Reebok's Centennial Plan, which was announced in November 1992 and

whose retail pricing provisions have since been withdrawn. To

expeditiously resolve the investigation and to avoid disruption to

the conduct of its business, Reebok 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 greater detail, but we

want you to know and understand that you can sell and advertise our

products at any prices 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,

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President,

Reebok International Ltd.

Exhibit B

[Rockport Letterhead]

Dear Retailer: The Federal Trade Commission has conducted an

investigation into Rockport's sales policies, and in particular

Rockport's Suggested Retail Pricing Policy, which was announced in

July 1992 and which, together with Rockport's subsequent ``Marathon

Policy,'' has since been withdrawn. To expeditiously resolve the

investigation and to avoid disruption to the conduct of its

business, Rockport 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 greater 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,

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President,

The Rockport Company, Inc.

Analaysis of Proposed Consent Order to Aid Public Comment

The Federal Trade Commission has accepted an agreement to a

proposed consent order from Reebok International Ltd. and The Rockport

Company, Inc. (a wholly-owned subsidiary of Reebok International Ltd.).

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 alleges that Reebok International Ltd. (``Reebok'')

and The Rockport Company, Inc. (``Rockport'') have entered into

combinations, agreements and understandings with certain of their

dealers to maintain the [[Page 25230]] resale prices at which certain

of their dealers sell certain of their athletic or casual footwear

products. The complaint alleges that this conduct violates Section 5 of

the Federal Trade Commission Act.

Reebok and Rockport have signed a consent agreement to the proposed

consent order that prohibits them from fixing, controlling or

maintaining the resale prices at which any dealer may advertise,

promote, offer for sale or sell any Reebok or Rockport product. The

proposed order prohibits Reebok and Rockport from coercing or

pressuring any dealer to maintain, adopt or adhere to any resale price,

and from securing or attempting to secure commitments or assurances

from any dealer concerning resale prices. The proposed consent order

also for a period of ten years prohibits Reebok and Rockport from

enforcing or threatening to enforce any policy, practice or plan under

which Reebok or Rockport notifies a dealer in advance that the dealer

is subject to partial or temporary suspension or termination if it

sells or advertises any product below a resale price designated by

Reebok or Rockport, 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 proposed order requires Reebok and Rockport to mail a letter to

their dealers which will inform them that they can sell and advertise

Reebok and Rockport products at any price they choose. The proposed

order also requires Reebok and Rockport, for a period of five years, to

place on any material in which they suggest resale prices a statement

that the dealer is free to determine the prices at which it will sell

Reebok or Rockport products.

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 or to modify in any

way their terms.

Donald S. Clark,

Secretary.

Dissenting Statement of Commissioner Roscoe B. Starek III, in the

Matter of Reebok International, Ltd., File No. 921-0117

I find reason to believe that Reebok International, Ltd.

(``Reebok'') has entered into agreements with retailers to restrain

resale prices and has thereby violated Section 5 of the FTC Act, 15

U.S.C. Sec. 45.\1\ But I have dissented from the decision to accept the

consent agreement in this matter because certain provisions of the

Commission's order are not necessary to prevent unlawful conduct and

may unduly restrain procompetitive activity by Reebok.

\1\See Dr. Miles Medical Co. v. John D. Park & Sons Co., 220

U.S. 373 (1911) (resale price maintenance (``RPM'') held unlawful

upon mere proof of agreement).

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Under most circumstances, including those here, the competitive

effects of RPM are ambiguous at worst and a full rule of reason

analysis likely would not reveal cognizable anticompetitive effects.\2\

Therefore, I would prefer that injunctive relief ordered to address RPM

be strictly tailored to the per se allegations. The fencing-in

restrictions in this order is related to resale price advertising (in

subparagraphs II (A) and (C)) and to Reebok's ``structured termination

policy'' (subparagraph II(D))--are unnecessarily broad and may enjoin

efficient conduct.\3\

\2\See, e.g., Pauline Ippolito, Resale Price Maintenance:

Evidence From Litigation, 34 J.L. & Econ. 263 (1991). See also Kevin

J. Arquit, Resale Price Maintenance: Friend or Foe? 60 Antitrust

L.J. 447 (1992).

\3\Even if the evidence in this case suggests that Reebok's

dealer advertising and termination policies supported RPM, deleting

the related fencing-in injunctions likely would be procompetitive.

The order should permit Reebok to exercise its lawful dealer

termination rights and to engage in any procompetitive minimum

advertised price programs ``unless (this conduct) includes some

agreement on price levels.'' Business Electronics Corp. v. Sharp

Electronics Corp., 484 U.S. 717, 735-36 (1988).

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[FR Doc. 95-11555 Filed 5-10-95; 8:45 am]

BILLING CODE 6750-01-M