Pools By Ike, Inc., et al.; Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 991 0038]

Pools By Ike, Inc., et al.; Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed Consent Agreement.

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SUMMARY: The consent agreement in this matter settles alleged

violations of federal law prohibiting unfair or deceptive acts or

practices or unfair methods of competition. The attached Analysis to

Aid Public Comment describes both the allegations in the draft

complaint that accompanies the consent agreement and the terms of the

consent order--embodied in the consent agreement--that would settle

these allegations.

DATES: Comments must be received on or before October 25, 1999.

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ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,

Room 159, 600 Pennsylvania Ave., NW, Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Thomas Dahdouh or David Newman,

Federal Trade Commission, Western Regional Office, 901 Market St.,

Suite 570, San Francisco, CA 94103. (415) 356-5294 or 356-5280.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal

Trade 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 above-captioned 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. The following Analysis to Aid

Public Comment describes the terms of the consent agreement, and the

allegations in the complaint. An electronic copy of the full text of

the consent agreement package can be obtained from the FTC Home Page

(for August 18, 1999), on the World Wide Web, at ``http://www.ftc.gov/

os/actions97.htm.'' A paper copy can be obtained from the FTC Public

Reference Room, Room H-130, 600 Pennsylvania Avenue, NW, Washington, DC

20580, either in person or by calling (202) 326-3627.

Public comment is invited. Comments should be directed to: FTC/

Office of the Secretary, Room 159, 600 Pennsylvania Ave., NW,

Washington, DC 20580. Two paper copies of each comment should be filed,

and should be accompanied, if possible, by a 3\1/2\ inch diskette

containing an electronic copy of the comment. 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)).

Analysis of Proposed Consent Order to Aid Public Comment

The Federal Trade Commission (``Commission'') has accepted, subject

to final approval, an Agreement Containing Consent Order (``Order'')

from fourteen swimming pool contractors in Bakersfield, California, a

city of 224,000 people in Kern County in the Central Valley of

California. As alleged in the Commission's proposed complaint, these

swimming pool contractors were part of an unlawful price-fixing and

group boycott combination that began in the Spring of 1998. The

proposed Order is designed to prevent the recurrence of these

anticompetitive practices engaged in by these swimming pool

contractors.

The Proposed Complaint

The proposed complaint alleges that, in the Spring of 1998,

fourteen swimming pool contractors formed an informal group, known as

the Southern Valley Pool Association (the ``Association''). The

complaint alleges that, through the Association meetings and other

communications, some of these swimming pool contractors agreed to

increase prices substantially to homeowners for swimming pool

construction. The proposed complaint also alleges that, as a result of

this combination, some of these contractors thereafter significantly

increased their prices to homeowners.

The proposed complaint also alleges that some of these swimming

pool contractors engaged in a group boycott designed to prevent

homeowners from escaping this collective price increase by turning to

alternative means for the construction of swimming pools. According to

the Commission's proposed complaint, homeowners usually hire a swimming

pool contractor to handle all aspects of constructing a swimming pool.

Some homeowners, however, may choose to enter into an arrangement,

known in the industry as an ``owner-builder'' arrangement, by which

they hire subcontractors directly or use swimming pool contractors as

consultants only in arranging for subcontractors. In this way,

homeowners who act as owner-builders are able to save substantial

amounts of money.\1\ Similarly, home construction developers and

contractors may hire swimming pool contractors to handle all aspects of

constructing a swimming pool, or they may hire subcontractors directly

for that purpose.

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\1\ In owner-builder arrangements, liability in the event of an

accident or injury during construction falls on the homeowner,

rather than on the pool contractor.

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According to the Commission's proposed complaint, owner-builders

were viewed as a major threat to the success of the collective efforts

by some swimming pool contractors to raise prices to homeowners.

Homeowners acting as owner-builders could work directly with

subcontractors or use pool contractors only as consultants and thereby

defeat the price increase. Similarly, home construction developers and

contractors could also work directly with subcontractors (rather than

with pool contractors) and similarly defeat the price increase. To

effectuate this group boycott, the proposed complaint alleges that,

beginning in early April 1998, a series of meetings was held, with some

of respondents and all or nearly all of each trade of subcontractors in

attendance. At these meetings, some respondents:

instructed the subcontractors to raise their prices to

owner-builders by 50 percent and to home construction developers and

contractors by 25 percent, substantial price hikes that were designed

to eliminate or reduce the savings homeowners and home construction

developers and contractors would normally realize by bypassing pool

contractors and dealing directly with subcontractors;

warned the subcontractors that the respondents would stop

subcontracting with them if the subcontractors did not increase their

prices to owner-builders and home construction developers and

contractors as set forth above; and

offered the subcontractors a quid pro quo whereby, if the

subcontractors agreed to increase prices to owner-builders and home

construction developers and contractors as set forth above, respondents

would agree to a specified increase (the amount of which varied

depending on the particular subcontracting work being done) in the

price subcontractors charged respondents for subcontractor services.

As a direct result of these meetings, according to the proposed

complaint, most of the subcontractors raised their prices to pool

contractors by the specified amounts on or about May 15, 1998. Also as

a direct result of these meetings, some subcontractors began charging

or sought to charge owner-builders and home construction developers and

contractors substantially higher prices than they charged swimming pool

contractors. Other subcontractors stopped doing owner-builder jobs

altogether, because they were fearful of losing their work with

respondents.

According to the proposed complaint, the effects of these

collective actions are to increase prices for swimming pool

construction services and swimming pool subcontracting services and to

interfere with consumers' choice in deciding to build their swimming

pool in an owner-builder arrangement or through home construction

developers or contractors.

The Proposed Order

The proposed Order contains provisions designed to remedy the

violations charged and to prevent the proposed respondents from

engaging in similar acts and practices in the future.

Paragraph II of the proposed Order would prohibit the proposed

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respondents from (1) entering into any agreement, express or implied,

relating to the price for swimming pool contracting or subcontracting

services and (2) requesting, proposing, threatening, urging,

recommending, advocating, or attempting to persuade in any way anyone

else to alter in any way their price and terms for such services.

Paragraphs II.A.(1) and B.(1) These provisions will prevent future

efforts, whether by agreement or through requests to others, to raise

prices and alter terms for both swimming pool contracting and

subcontracting services.

Paragraph II would also prohibit the proposed respondents from

entering into any agreement to refuse to deal with owner-builders or

home construction contractors or developers. Paragraph II.A.(2). It

would bar them as well from requesting, proposing, threatening, urging,

recommending, advocating, or attempting to persuade in any way any

swimming pool contractor or subcontractor to refuse categorically to

deal with owner-builders, home construction contractors or developers,

or swimming pool contractors who act or wish to act as consultants for

owner-builders. Paragraphs II.B.(2) and (3). Finally, Paragraph II

would prohibit respondents from requesting, proposing, threatening,

urging, recommending, advocating, or attempting to persuade in any way

any subcontractor with respect to the terms of that subcontractor's

dealings with owner-builders, home construction contractors or

developers, or swimming pool contractors who act or wish to act as

consultants for owner-builders. Paragraph II.B.(4).

Together, these provisions will bar respondents, collectively as

well as individually, from seeking (1) to stop any subcontractor from

working for owner-builders, home contractors or developers, and

swimming contractors who act or desire to act as consultants for owner-

builders; (2) to change the prices and terms subcontractors charge

those homeowners and contractors; and (3) to stop other swimming pool

contractors from working for those homeowners and contractors. These

provisions, by barring individual efforts as well as collective ones,

fence in respondents from engaging in conduct similar or dangerously

close to the unlawful activity they engaged in earlier.

A proviso to Paragraph II makes it clear that nothing in this

Paragraph prohibits any respondents from discussing and/or entering

into a specific proposed or actual business transaction or project in

which those involved are or would be in a contractor/subcontractor or

other joint or cooperative working relationship.

Paragraph III of the Order requires respondents, for a period of

five years, to tape record all meetings and maintain copies of those

tape recordings and all materials distributed at the meetings. This

provision should have a prophylactic effect in ensuring that the

respondents do not seek to engage in such anticompetitive conduct

again.

The proposed Order also requires that, should the respondents turn

the Association into a more formal organization, they must incorporate

Paragraph II of this Order by reference in the by-laws of such

organization and distribute a copy of the by-laws to each of the

members of the organization. Paragraph IV. Finally, the Order contains

reporting requirements (Paragraphs V. and VI.) and provisions

guaranteeing Commission staff access should the need arise (Paragraph

VII.).

Opportunity for Public Comment

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 purpose of this analysis is to invite public comment on the

proposed Order. This analysis is not intended to constitute an official

interpretation of the agreement and proposed Order or to modify their

terms in any way.

By direction of Commission.

[FR Doc. 99-21919 Filed 8-23-99; 8:45 am]

BILLING CODE 6750-01-M