New Balance Athletic Shoe, Inc.; Proposed Consent Agreement with Analysis to Aid Public Comment

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

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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

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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